Have you heard of the pension advice allowance?

Chancellor Philip Hammond got a hammering for his u-turn on national insurance contributions for the self-employed, but consumers are much less aware of two new tools to help investors build savings, the lifetime ISA and the pension advice allowance. These were actually his predecessor’s pet projects, but they come into force in April at the start of the new tax year. 

The Lifetime ISA is a no-brainer for young people. It is designed for people looking to save for their first home and/or retirement. From 6 April 2017, anyone aged between 18 and 39 will be able to open a Lifetime ISA. Up to the age of 50, savers  can contribute up to £4,000 a year and receive an added 25% government bonus. That means that for every £4 contributed, the government will add a further £1 (up to a maximum of £1,000 a year).  What’s not to like?

Despite the attractiveness of the Lifetime ISA, young people are generally unaware of the product and its benefits. According to a Yougov survey sponsored by Zurich, two-thirds of UK adults aged between 18 and 40 have never heard of the Lifetime ISA. This is something the Treasury is painfully aware of, as it has been calling providers to ask if they are going to offer them and is trying to drum up support. It is unclear as yet, how many providers will offer Lifetime ISAs in a couple of weeks’ time.

The second item to pass unnoticed is the Pension Advice Allowance. This lets consumers take £1,500 in three £500 tranches from their pension (provided they are not taken in the same tax year) to pay for retirement advice. According to various surveys, at least three-quarters of savers are unaware of the allowance.

While not as relevant to young people in the early stages of saving for retirement, since pension freedom came into force, getting the right advice is critical for people approaching retirement. Pension freedom means investors are free to choose and place their money where they see fit, but there are many pitfalls to avoid. Mistakes can be costly (for example you’ll be heavily penalised by HMRC for withdrawing more than you should). Running out of money is one of them… not to mention the con artists determined to rip them off their life-long savings.

To find out more about pension freedom click here.

To find out more about the different types of ISAs, click here.

Article is accurate at date of writing.