Many employees are struggling with their finances, due to increasing personal debt, demanding financial commitments and a limited ability to save for the future. And since the introduction of Pensions Freedoms, individuals have even more to think about these days.
Employees must figure out how to build up a sufficient retirement savings pot amid a baffling array of options at retirement. These choices may include making use of the equity in their house and not annuitising everything to allow for more flexibility, to setting a new retirement goal at age 65, and perhaps taking on more risk. And for younger generations currently climbing the property ladder or trying to clear student debt, saving for a pension is likely not a top priority.
In short, employers have a duty of care to look after employee interests in an increasingly complex financial world.
Government support for advice provision
The government has recognised this growing need and demand for advice. This is reflected in a recent increase to the previous £150 tax-exempt limit on employer-funded advice for employees.
The exemption now covers the first £500 of pension advice provided to an employee — including former and prospective employees — in a particular tax year. Advice can cover employee pension arrangements, as well as general financial and taxation issues relating to those funds.
Employers can pay an adviser or employee benefits consultant directly. Alternatively, they can reimburse employees for advice they’ve paid for themselves without the payment being treated as a benefit-in-kind. Employers can also make this exemption available via a salary sacrifice arrangement.
The government has confirmed that this exemption may also be used alongside the Pension Advice Allowance, which effectively enables your employees to access up to £1,000 of tax advantaged financial advice in a tax year.
Introduced in April 2017, the Pension Advice Allowance permits pension savers up to three tax-free withdrawals from their pension pots to put towards advice from a registered financial adviser. The payment is made direct from the pension scheme to the adviser.
This allowance can be used at any age: at the younger to middle years to build a sufficient retirement savings pot, and at a later age to help make sense of the many options available at retirement.
How and why financial literacy is there for the taking
- Employee financial considerations can be baffling at any age. Employers have a duty of care to look after employee interests.
- A one-size-fits-all solution simply won’t cut it. Financial advice represents the only truly tailored option.
- The government has put in place incentives to support the need and demand for financial advice — businesses and employees should make full use.
£1000 - Tax advantaged financial advice via the pension allowence.