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.
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.”
— ABI (@BritishInsurers) February 3, 2017
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.”