View more on these topics

Advisers sceptical on value of Govt pensions advice allowance

Parliament-Fog-UK-London-2012-700x450.jpg

Advisers have expressed doubts that the Treasury’s new pensions advice allowance will see more individuals taking advantage of full financial planning.

The Treasury said last week that instead of being able to take £500 early from a pension to seek advice as was originally planned, consumers will now be allowed to draw £1,500 in three £500 tranches, providing they are not taken in the same tax year.

The allowance comes into force from April this year. It can also be used to access robo-advice services, and applies to any retirement advice except areas such as inheritance tax planning which are not “strictly related to retirement”.

There are no age limits on the allowance or requirements on providers to inform clients that it exists. Users of the allowance will have to self-declare they have not used more than the tax-free amount they are entitled to.

Advisers will still have to do “basic due diligence” if they have evidence the tax threshold would be breached by a payment however.

Market movements?

Ovation Finance managing director Chris Budd said that any situation where more people getting advice who couldn’t before and more advisers being paid would be a “win win”.

However, Susan Hill Financial Planning director Susan Hill says that because the £500 allowance will have to be taken in three chunks, this will limit the service advisers will be able to provide.

She saysL “What you are saying is that you can only get £500 for each bit of advice. I can’t give advice for that. You can give guidance, start someone in the general direction, because you have got all the regulator paperwork to do, which includes indemnity insurance, in order to give them a recommendation.”

She is also sceptical over what level of service can be provided by a robo-adviser.

“You need experience to work this out, and you’re not going to get that from a robo.”

The value of advice

Independent Advisers Scotland managing director Alistair Creevy says that while the allowance does recognise the value of advice, spreading the allowance over three or more years limits what planning can be done.

He says: “I think it will be a great step. It’s the first time the Government have really acknowledged there are financial advisers out there and the public need professional advice rather than relying on journalism or the internet.”

Creevy suggests the allowance could have been supplemented with a free voucher or should be allowed to be used in the same tax year so people can solve complicated financial issues in one go.

“If you’re minded to get financial advice you want to know all the options fairly quickly, and not have to come back next year and ask if you can discuss it further. If you went to a dentist wanting treatment that’s quite complex you want it done quickly.”

Creevy thinks the real test will be how provider technology holds up to facilitating a significant number of early withdrawals.

“The stumbling block is whether product providers can accommodate the withdrawals from pension funds. That’s down to the providers’ systems and can they take partial withdrawals. They should be able to but not all the providers have up to date systems to do that.”

The Treasury did not include an estimate of how many people would likely use the allowance in its announcement.

A Treasury spokeswoman told Money Marketing: “We don’t have any estimates of potential take up although we’ve had indications from major providers that we will achieve good market coverage.”

Recommended

3

42 per cent support early access to state pension

42 per cent of the population are in favour of overhauling the state pension to give people earlier access, even at a reduced rate, according to research from Aegon. In a poll of 2,000 people in the run up to the Cridland review consultation closing, Aegon found that nearly half of people thought pension policy […]

2

How will pensions early access for advice work in practise?

A plan to allow savers to dip into their pensions early to pay for advice has prompted a call for controls to be imposed. Advisers and providers are concerned over how the money would be transferred to clients. Last week the Financial Advice Market Review recommended all-owing people to draw on their pension savings up […]

Parental leave and pensions

Fiona Hanrahan  – Senior Product Insight and Technical Support Analyst We are often asked how parental leave impacts workplace pension schemes in terms of funding in general, auto enrolment and salary exchange. This article will explain each of these. How does parental leave impact the funding of workplace pension schemes? A member of a defined […]

Boosting our annuity strategies

Targeting annuity purchase in lifestyle strategies isn’t anything new but we’ve just lifted the bonnet and injected an enhancement shot into the end-point of these solutions. The recent volatility has shot short-term volatility into equity markets and painted a very turbulent backdrop but we’re also equally faced with a stressed fixed interest environment. This can […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment