People using the money will be able to opt for robo-advice as one choice, alongside traditional face to face advice.
The plans, arising from the Budget 2016, have been rubber stamped today.
The new Pension Advice Allowance will enable people to withdraw £500 up to three occasions from their pension pots tax-free to put towards the cost of pensions and retirement advice.
Following a consultation, the Economic Secretary to the Treasury, Simon Kirby, has today confirmed that the £500 allowance:
• can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing pension or just prior to retirement
• will be available at any age, allowing people of all ages to engage with retirement planning
• can be redeemed against the cost of regulated financial advice, including ‘robo advice’ as well as traditional face-to-face advice
• will be available to holders of “defined contribution” pensions and hybrid pensions with a defined contribution element, not “defined benefit” or final salary type schemes
Pension providers will be able to offer the allowance to their members from April 2017.
Simon Kirby, Economic Secretary to the Treasury, said: “Pensions and savings decisions are some of the most important a person will make during their lifetime.
“This allowance will help people get the vital financial help they need to plan for their retirement.”
Tom Selby, senior analyst at AJ Bell, said: “The introduction of the advice allowance is an improvement on the existing system, but we need to be realistic about what this will achieve. According to the Treasury’s own analysis, face-to-face advice costs £150 per hour on average, and can take up to nine hours for pensions – meaning even with the allowance you still might have to make up a shortfall of £850.
“The sector is clearly evolving and innovative ‘robo-advice’ models may develop to help people assess their retirement options. But we are some way from that point at the moment and the Government should not see the advice allowance as some sort of panacea that will magically solve the UK’s advice gap.”
David Stevens, director of Advice Strategy at LV=, said: “The Government is absolutely right to allow people to access money from their pension pot to pay for advice and it’s positive this reform covers both traditional and ‘robo-advice’ to meet consumers’ changing habits. We know that the upfront cost of advice can be a major barrier for consumers and today’s announcement should ensure that more people can get the help and support they need. Professional financial advice is vital for retirement planning to help people make the right decisions for them and ensure consumers get the most from their hard-earned savings.”