When is pensions advice exempt from tax?

Tax-exempt benefit

Employers can pay up to £500 per person per tax year for pensions advice for their employees and directors. This benefit is one of the few that are not subject to the benefit in kind rules, i.e. the benefit is exempt from income tax and NI.

Unlike most other benefits in kind, you can pay for pensions advice for your employees as part of a salary sacrifice (optional remuneration) arrangement without the income tax or NI exemption being lost.

Conditions

There are two conditions, one of which must be met for the exemption to apply.

Condition A. The benefit must be offered to all staff. You can’t pick and choose which employees to offer it to. If you offer it only to, say, directors then the exemption won’t apply unless condition B is met.

This could be rather costly if you have a lot of employees, unless you implement a salary sacrifice arrangement in line with the tip above. You can restrict this perk to employees at a specific location. For example, if your business has more than one premises you can limit the perk to, say, all the employees at just one.

However, there is another way to benefit from the tax exemption whilst limiting which employees can use it.

Condition B. The exemption can apply if you offer to pay for pensions advice to employees on grounds of their age (they must be five years or less away from being able to take pension benefits from a registered pension scheme, i.e. currently aged 50 plus) or because of ill health.

You only need to offer the benefit to all employees (or all those employees who meet the age or ill-health requirement), it doesn’t matter how many employees use it, the exemption still applies.

The £500 limit applies each year. If the advice spans more than one tax year ask the advisor to bill for their work on an ongoing basis so the exemption can be used in each year.

Example. Andy works for Acom and starts receiving pensions advice that meets the conditions for the exemption in February 2026, i.e. in 2025/26. The advice is ongoing so that the total bill for the advice is £850 by May 2026, i.e. 2026/27. To get the benefit of the exemption in each year, Acom should ask the advisor to send a bill when the value of advice reaches £500 or by 5 April if that’s sooner. The full £850 bill is then exempt from tax and NI for both Andy and Acom, whereas with one bill of £850, only £500 would be exempt with the remaining £350 taxable.

Tax-free advice

Given that the exemption can apply to those approaching age 55 or in ill health, a common misconception is that the advice must be limited to advice on drawing a pension. That’s not the case. It can include advice on general financial and tax issues relating to pensions arrangements. This includes advice on how much to pay into your pension in each tax year and the impact on your tax liability.

The exemption applies to advice on all of your pension funds and is not restricted to the one which your company currently contributes to.