Regulations have been passed which will, from 6 April 2017 and where scheme rules allow, permit payments of up to £500 from members’ DC and hybrid pension pots to pay for financial advice about their retirement.

The Regulations will include a ‘pension advice allowance payment’ in the list of authorised payments that a pension scheme can make without incurring punitive tax charges.  Members will be entitled to request payments of up to £500 tax free from their pension pot, no more than three times in their life and once in any year.   

In order to qualify, a pension advice allowance payment must be:

  • Permitted by the Scheme’s rules;
  • Requested in writing by the member, together with a declaration that the member has not exceeded the lifetime and annual allowances for such payments (referred to above), and that the advice is from an FCA regulated advisor;
  • Paid directly from the Scheme to the advisor; 
  • Paid from a DC pension or a hybrid pension with a money purchase or cash balance element; and
  • Relate to advice given in relation to the member’s financial position, including their pension arrangements and use of pension funds.

This means pension advice allowance payments will not be permitted from ‘pure’ DB pension pots, although DB schemes that include some aspect of money purchase benefits – for example additional voluntary contributions – may be affected and should consider whether to allow such payments.  

While the member is under a duty to self-report their compliance with the Regulations, HMRC has said it expects trustees and providers to exercise normal due-diligence in responding to such requests, for instance by refusing a payment where Scheme records indicate one has been made within the same year, or where there is reason to believe that no advice has been provided.  HMRC has indicated that detailed guidance on the Regulations will be published shortly after they come into force on 6 April 2017.

The Regulations do not include a statutory override, meaning that they will only be permitted where scheme rules allow – therefore trustees should consider if they are willing to permit them and rule amendments may be needed for some schemes.  HMRC has indicated it will keep a potential statutory override, as well as the financial limits of the allowance, under review as the market for such payments develops.

The Regulations follow the FCA’s on-going Financial Advice Market Review, and are in response to concerns that adviser’s fees have led to a ‘retirement advice gap’ for members with small pension pots.  The FCA has said it will support the regulatory development of so-called ’robo-advice’, which HMRC believes may specifically target pension advice allowance payments.  

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