Advice for savers

At the same time as a new government initiative is launched that allows pension savers to withdraw tax-free cash from their pension pot to pay for financial advice, official figures show that the UK’s savings ratio fell to its lowest level in the last quarter of 2016 since the early 1960s.

According to the Office for National Statistics (ONS), the ratio, which measures the outgoings and incoming that affect households, fell partly because of changes in insurance and pension values. However, it was also part of a wider trend, which has seen the ratio fall since mid-2015, as consumer spending outstripped growth in disposable incomes and, according to the Bank of England, the ratio will fall further in the next three years because of weaker incomes.

However, for those who have managed to save a decent amount, the decision about what to do with the cash is so important that the Government is keen to ensure that they are “supported in making good financial decisions”.

The new pension advice allowance will therefore allow pension savers to withdraw a maximum of £500 tax-free, up to three times across three different tax years, to contribute towards the cost of financial advice.

This will save a basic rate taxpayer £100 and a higher rate taxpayer £200 each time they draw the amount out and is in addition to the 25 per cent tax-free lump sump that individuals can take once they are 55.

The allowance is available at any age in a bid to allow savers to plan ahead for retirement and, crucially, to engage with their retirement planning early, and does not need to be for advice on pensions but could be for any form of saving that will benefit them in retirement.