If you want advice on what to do with your pension but are worried about the cost, you may be able to take £500 from your retirement savings tax-free to help pay for it, known as the Pensions Advice Allowance.

A study produced by the International Longevity Centre (ILC) with the support of Royal London found that, following financial advice, the average saver who was ‘just getting by’ had their pension pot boosted over a decade by an average of £35,054, compared to those who didn’t take advice. In the ‘affluent’ group, those who took advice ended up with £24,266 more after 10 years than those who didn’t seek advice. You can find out more about the benefits of financial advice in our guide The value of financial advice.

Despite the financial boost that advice can potentially give pension savers, many people think that financial advice is unaffordable or not for ‘people like them’. Learn more about this in our article Pensions guidance gap leads to massive shortfall in savings.

The Pensions Advice Allowance is designed to encourage people to seek advice, so that they can make the most of their retirement savings. Here’s what you need to know.

How does the Pensions Advice Allowance work?

You can take up to £500 out of your pension three separate times before you reach the age of 55 if you use this money to pay for advice about your pensions. The money is paid directly from your pension provider to the financial adviser, and you don’t have to pay tax on the money taken out of your pension.

However, pension trustees and scheme providers don’t have to offer the allowance if they don’t want to, so you’ll need to check if yours does first.

Get a free no-obligation pension consultation

Pension advice can help you get the most out of your retirement income, helping you on your way to a secure financial future. If you have more than £75k in pension savings, take the first step by arranging a free, no-obligation initial consultation with an expert from Aviva Financial Advice. Any recommendations advisers make will be for products from Aviva and other carefully selected partners. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Capital at risk.

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What can I spend the Pensions Advice Allowance on?

You can use the £500 to pay for financial advice about any or all of your pensions and retirement income options. As long as the advice is regulated (namely, provided by someone who’s regulated and authorised by the Financial Conduct Authority to give financial advice) there aren’t any further restrictions on who you get the advice from. However, you wouldn’t be able to use the £500 allowance for ‘guidance’ about your pension – only for tailored financial advice. You can use your £500 allowance on digital and robo-advice if you want to.

Earlier this year, a Work and Pensions Committee called on the government and regulators to overhaul the Pensions Advice Allowance and remove the annual limit. It also wants advisors to signpost its use more. The Committee also recommended that the overall Pensions Advice Allowance should be uprated in line with inflation each year.

How often can I use the Pensions Advice Allowance?

You can use your Pensions Advice Allowance up to a maximum of three times. It can be used at any age, but only once in any tax year.

Can I get pension advice for £500?

The £500 Pensions Advice Allowance won’t necessarily pay for all the advice you’ll need, although it would depend on whether you were getting face-to-face advice or advice online, and on how complicated your circumstances are. If your advice costs more than £500, you can put the Advice Allowance towards it.

Bear in mind that many advisors offer an initial free consultation, which gives you a chance to try out their service and ensure you are happy to have a continuing relationship before paying for anything.

Can I take £500 out of my final salary pension to pay for advice?

No, you can only use money from defined contribution pensions to pay for advice using the Pensions Advice Allowance. But if you have both final salary and defined contribution type pensions, you can use the Pensions Advice Allowance from your defined contribution pension to get advice about all your retirement options, including any questions you may have about your final salary pension.

Where else can I get help on my pension?

The Government’s Pension Wise service, run by the Pensions Advisory Service and Citizens Advice, provides people aged 50 and above with free guidance on their pension choices at retirement. You can give them a call on 0800 138 3944 to book a free appointment, or you can book one via their website.

It’s always worth taking advantage of a free appointment with Pension Wise, however if you want advice that’s tailored to you specifically, you’ll also need to speak to a financial advisor, as Pension Wise can only provide general guidance and not individual recommendations. In this case, our guides How to find the right financial advisor for you and How to get advice on your pension might be helpful.

If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.