Employees are missing out on a valuable tax perk that cuts the cost of financial advice by up to £310 a year.
Launched last November, pension advice vouchers are a government initiative similar to childcare vouchers and the cycle to work scheme. But they have gone largely unnoticed, with few companies offering the benefit to workers.
Staff are entitled to swap up to £500 of their pay each tax year for a pension advice voucher through a salary sacrifice scheme. The voucher can be used to obtain financial advice about any sort of pension the employee has; it does not have to be about their company scheme.
Depending on the employee’s wages, the voucher costs them as little as £190, thanks to the tax and national insurance saved.
“Very few employers are offering the scheme, hence few employees are aware of it,” said Adam Price, founder of the financial adviser review website VouchedFor.
“Access to good financial advice is so important right now — and this government initiative reduces the cost by up to 62%. I would urge all employees to lobby their employers for access to this scheme.
“It’s especially urgent for the 1.2m employees who already pay for advice each year; they have only until April if they want to capture their first year’s savings.”
The £500 advice voucher broadly costs £340 for basic-rate taxpayers and £290 for higher-rate payers. For those earning £100,000-£123,000, it costs just £190. Workers earning above this pay £210.
Brian Henderson, partner at the human resources consultancy Mercer, said there were “few, if any” employers offering the benefit. “The scheme can work really well in principle, but we haven’t seen masses of interest,” he said. “If employees want it they should argue very heavily that they want it in place.
“There’s an underlying challenge with employers offering an advisory service such as the vouchers and highlighting advisers to choose from, as they worry the advice could go wrong and they’re on the hook for it.
“Also, there’s probably just a lack of knowledge. It hasn’t been well publicised.”
Workers can use the voucher with any financial adviser; they do not have to use one chosen by their employer. According to HM Revenue & Customs, the advice can be about financial and tax issues relating to “pension arrangements or pension funds, allowing individuals to make informed decisions about saving for their retirement”.
The advice can cost more than £500. Anything above this will be taxed and incur national insurance as usual. Workers with more than one employer can benefit from several vouchers in a tax year, gaining one voucher from each employer who provides the scheme.
VouchedFor offers a pension advice salary sacrifice scheme available to employers. Clients that have already paid for financial advice can submit a request via the website pensionadvicevouchers.co.uk. It will then contact the client’s employer to see if it wants to set up the scheme.
The £500 limit replaces old rules whereby employees were allowed a tax-exempt benefit of £150 of pensions advice a year.
Emma Roberts of JLT Employee Benefits believes more companies may start offering the perk after April, as employers traditionally review their benefits arrangements at the start of each tax year.
“By the time the increased limit was confirmed in legislation, most companies will have already been well down the line of finalising any new benefits for the year,” she said.
Another scheme connected to pensions advice was launched last year. Since April, savers of any age can withdraw three tax-free instalments of £500 from their pension pot to pay for advice. This £1,500 is on top of the 25% tax-free lump sum savers can typically access when they retire.
As with the pension advice vouchers, few people seem to have heard of this allowance. Pension providers are not required to offer the facility. Many are not offering it and, as a result, take-up appears low across the industry.