The Government is pushing ahead with plans to introduce a £500 allowance for retirement advice but warns there are fraud risks attached with using the allowance more than once.
The Treasury has published a consultation paper on how to implement a “pensions advice allowance”, as first proposed as part of the initial Financial Advice Market Review recommendations last year.
Under the allowance, consumers would be able to take £500 tax-free from their defined contribution pension to redeem against the cost of advice.
It would be available before the age of 55, though the Government is consulting on what age specifically would be appropriate.
The allowance would be on top of the tax-free lump sum.
At the Budget, the Government previously it would increase the tax exemption for employer arranged advice from £150 to £500.
The two measures together, which will come into effect from April, would give savers access to up to £1,000 of tax advantaged advice.
The Treasury is considering the use of the allowance more than once at different stages of retirement, such as retirement planning and long-term care costs.
But it says: “There is a trade-off to be made.
“Allowing multiple uses of the allowance would give consumers the ability to take advice when their needs change.
“However those who can afford to take financial advice regularly, or have an ongoing adviser relationship could receive the benefit many more times than those who don’t.”
The Treasury has also highlighted the increased risk of scammers using the allowance to further target pension pots.
It says: “There is also a risk of creating more opportunities for pension fraud.
“For example, if the allowance could be used an unlimited number of times, some people may see this as an opportunity to imitate an adviser and persuade individuals that they can withdraw the allowance multiple times from multiple pots for other uses.”
To counter this threat, the Treasury suggests limited the total number of times the allowance can be used, perhaps to three uses per person.
The consultation closes on 26 October.