What is the pension advice allowance? Up to £500 a tax year can go from a money purchase pension straight to an adviser, tax free, up to three times.
The allowance is a tax rule, not a separate pot of money. HMRC's Tax Information and Impact Note explains that it lets members take £500 from their scheme towards the cost of retirement financial advice "without incurring an unauthorised payment tax charge". Free, impartial guidance is the other route: Pension Wise is free. To learn whether the allowance might offset part of an adviser's fee in your case, raise it when you fill in this page's form; an FCA-authorised adviser rings back, and sending it costs nothing.
How does the pension advice allowance work?
The rule has applied since 6 April 2017. It sits in regulation 21 of the Registered Pension Schemes (Authorised Payments) Regulations 2009, inserted by SI 2017/397. In the impact note's summary, a member or beneficiary can take £500 tax free at most once in any tax year, and three times over their lifetime.
The regulation sets out the conditions a payment must meet to be authorised, and HMRC's Pensions Tax Manual (page updated 14 August 2024) explains each one:
- It pays for retirement financial advice given to you, or for putting that advice into effect.
- You ask the scheme in writing, and your request includes a declaration that the next three conditions are met.
- No more than two payments have already been requested and made for you.
- No payment has been requested and made for you in the tax year of the request.
- The advice is regulated financial advice from an adviser "regulated and authorised by the Financial Conduct Authority" to give it.
- The scheme pays the adviser directly, from a money purchase or hybrid arrangement. The money never passes through your hands.
- The payment is no more than £500.
People who are members as a dependant, nominee or successor of someone who has died can ask too. A few details are easy to miss:
- It does not roll over. Unused allowance cannot be carried forward, and two smaller payments in one tax year are not allowed even if together they come to £500 or less. If a £375 bill is paid from the allowance, the next payment waits for the following tax year at the earliest.
- The limit of three follows the person. It counts across all schemes, whatever capacity you hold in each, so keep a note of any earlier use: the declaration is yours.
- No income tax. The member or beneficiary is not taxed on a payment made in respect of them.
To confirm an adviser's authorisation before a payment goes to them, finding a pension adviser walks through the FCA Register checks.
What kind of advice can it pay for?
The regulation defines "retirement financial advice" as advice on your financial position, including your pension arrangements and the use of your pension funds. HMRC says it is satisfied that this takes in funding care in old age, deciding whether you will need income beyond your pension savings (equity release from your home is its example), and how to draw income from all your pension pots and a stocks and shares ISA. It does not take in inheritance tax planning, or advice only on an investment fund that will not be used for retirement income.
The allowance pays towards advice; it says nothing about what an adviser charges. How fees are built is in pension advice cost, and whether a fee pays for itself is in are pension advisers worth it? Whether £500 covers a whole bill or only part depends on the firm and the work. An FCA-authorised adviser who calls after you send this page's free enquiry form can set out their charges for your situation.
Will your pension scheme pay it?
Not necessarily. The impact note is plain: "The Pension Advice Allowance is not mandatory, schemes have a choice whether to offer the allowance or not." The tax rules permit a payment; they do not oblige the scheme to make one, and members apply to the scheme administrator where it is available.
So the question for each provider or administrator is whether it pays the allowance, how to request it and how long payment to the adviser takes. With several pensions, the answers can differ. A purely defined benefit pension is outside the rule, since the payment must come from a money purchase or hybrid arrangement.
Employer-paid advice is a separate rule
An employer can also provide or pay for pensions advice, and HMRC's Employment Income Manual (EIM21803) explains that Section 308C ITEPA 2003 exempts the cost from income tax up to £500 in a tax year. Anything above that is subject to income tax and National Insurance in the normal way. It covers former and prospective employees, and advice on all their pension arrangements, not only the employer's. The employer's arrangements must meet one of two conditions: open to all employees generally, or to all at a particular location; or open on that basis to those who have reached the "minimum qualifying age" (their relevant pension age less 5 years) or who meet an ill-health condition backed by a registered medical practitioner's evidence. It is a tax exemption on a benefit, not a withdrawal from your pension, and your employer's pensions or HR team can say whether it is offered. Both routes appear alongside other ways to pay in pension advice cost.
Pension advice allowance: questions people ask
Is the pension advice allowance still available?
HMRC's manual, updated 14 August 2024, still sets out the rules above. Whether your own scheme pays it is a separate question for the provider.
Can I use it for a SIPP?
The rule covers payments from money purchase and hybrid arrangements in a registered pension scheme, which includes a SIPP, but the provider decides whether to pay, so ask it. More on SIPPs.
How do I ask my pension provider to pay it?
In writing, with the declaration described above. Some providers have their own form, so ask what they need. Choices once the advice is done are in your options at retirement.
Does it cover inheritance tax planning?
No. HMRC excludes inheritance tax planning from retirement financial advice for this purpose.
Can it pay for free guidance such as Pension Wise?
There is nothing to pay for: Pension Wise is free, and the allowance is for regulated advice from an FCA-authorised firm.
Your next step
Prefer to hear a fee before using one of your three payments? Fill in this page's short form, which costs nothing, and an FCA-authorised adviser will call to talk through charges and how the allowance might fit.