Advice is key to more retirement income

According to Unbiased, research has found that when approaching retirement only 22% of people know the value of their pension pot and only 14% of people would be confident planning their retirement goals without financial advice.

If they take financial advice, UK savers with a pension pot of £100,000 save an average of £98 more every month and receive an additional income of £3,654 every year of their retirement.

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.

It can be used when first choosing pension or just prior to retirement such as deciding between buying a pension annuity, fixed term plan or flexi-access drawdown.

Even though the PAA is intended to be available from April 2017, providers of pension plans may not be able to deliver the service due to the complicated structure of existing policies, according to research from Financial Adviser, a publication from the Financial Times.

Older policies cannot allow advice fees

The main issue is for policies set-up before the introduction of the Retail Distribution Review (RDR) in 2012 do not allow for customer agreed remuneration. For the providers approached such as Standard Life, Prudential, Royal London, Scottish Widows and Zurich, they could only release the advice fee once the plan begun drawing an income from age 55.

Despite the restrictions imposed by these older policies, it would be possible to transfer them to new plans that would apply the legislation post RDR and it would be possible to access the fund to pay an advice fee.

The limit of £500 per tax year would in many cases be below the minimum amount financial advisers charge to make this cost effective. In addition where the size of the pension fund is very small, such as £10,000, the £500 using the PAA would not be enough to provide the level of advice necessary to increase the yield on the fund by 5% to return the cost of advice.

In most cases advice fees can be deducted from the fund and paid by the provider to the financial adviser without the need to withdraw from the fund first and paid directly.