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Govt sets out plans for £500 advice allowance but warns of fraud risks

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The Government is pushing ahead with plans to introduce a £500 allowance for retirement advice but warns there are fraud risks attached with using the allowance more than once.

The Treasury has published a consultation paper on how to implement a “pensions advice allowance”, as first proposed as part of the initial Financial Advice Market Review recommendations last year.

Under the allowance, consumers would be able to take £500 tax-free from their defined contribution pension to redeem against the cost of advice.

It would be available before the age of 55, though the Government is consulting on what age specifically would be appropriate.

The allowance would be on top of the tax-free lump sum.

At the Budget, the Government previously it would increase the tax exemption for employer arranged advice from £150 to £500.

The two measures together, which will come into effect from April, would give savers access to up to £1,000 of tax advantaged advice.

The Treasury is considering the use of the allowance more than once at different stages of retirement, such as retirement planning and long-term care costs.

But it says: “There is a trade-off to be made.

“Allowing multiple uses of the allowance would give consumers the ability to take advice when their needs change.

“However those who can afford to take financial advice regularly, or have an ongoing adviser relationship could receive the benefit many more times than those who don’t.”

The Treasury has also highlighted the increased risk of scammers using the allowance to further target pension pots.

It says: “There is also a risk of creating more opportunities for pension fraud.

“For example, if the allowance could be used an unlimited number of times, some people may see this as an opportunity to imitate an adviser and persuade individuals that they can withdraw the allowance multiple times from multiple pots for other uses.”

To counter this threat, the Treasury suggests limited the total number of times the allowance can be used, perhaps to three uses per person.

The consultation closes on 26 October.

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. £500? It does make you wonder what connection with reality that the Treasury or the regulator has, if they think that retirement advice and all the associated hoops we have to jump through can be provided for anything approaching £500.

    Well if we are happy to work for and pay minimum wage, I suppose it might be.

  2. I am sure the insurers and SIPP providers will welcome the extra costs and administration. Clearly this is not aimed at our typical clients who pay fees or fund based service charges from their pension funds for advice anyway.

  3. What a rubbish idea and plan, and one that should be canned now !!

    If the government really wants to lower the cost of advice or indeed help those who cant afford to pay for advice it needs to start at the very root of the problem…….. regulation, not only its rules but the very beating heart the FCA !

    WHY SHOULD THE CONSUMER BE MADE TO PUT THEIR HANDS IN THEIR POCKETS EVEN DEEPER ?

    The FCA should have their budget cut by half !

    My companies biggest expenses are, the FCA, levies, compliance, PI and regulation has a got a lot to answer as to why, PI and compliance has increased so much over the past few years.

    By lowering cost for companies, it will not only help those with pensions but ALL who need financial advice (saving, investing, protection, mortgage, debt, young, old, etc etc etc).

    Also, and being brutally honest, £500 quid (for a new client) is not worth getting my pencil case out for ! (in the current climate)

    One only has to look at the demographics, the FCA cost the industry well over £500 million a year not taking into account the FSCS, FOS etc etc, now, how many “BILLIONS” has been lost to the industry by way of pension scams ?
    That is not the fault of the regulated advice sector (by and large) this lays squarely at the door, incompetent regulation, a rule book not fit for purpose and the allowing of “non-advice”,

    Make no mistake my clients pay for this ! they pay for the high salaries, the bonuses (that we are obliged to end), the endless scams, fund and company failures, levies ……….

    The truth is, the solution really is the problem…….

  4. Maybe just once, these people would ask the advice sector to demonstrate to them the processes and costs involved in delivering at retirement advice to members of ‘defined benefit schemes’ (not money purchase) and then they would see that £500 doesn’t stretch far enough! Is this just another effort to make our sector look bloated and greedy in saying no, or a genuine attempt at providing a solution? If it’s the latter then they need to be checking their plans with the people who will actually be delivering the service. They are on the FCA site but may not all be found in the square mile!

  5. A number of ideas, thought, pointer to help these poor very highly paid people.

    1) Make payment of the fee linked to the clients NI, that way can only be paid once.
    2) It has to be signed by a FCA regulated adviser that they had completed the meeting.
    3) Increase the fee to at least £1,000 as most advisers will not look at a DB case below this amount because of the work involved and the risk.
    4) For DB arrangements the FCA has to come up with a process that if followed correctly the adviser has confidence that they cannot face unfair claims in the future. Of bad advice they will be liable, but not for selective memory loss when the money runs out.
    5) Reduce the FOS and claims companies retrospective compensation culture by making the FCA as suggested in point four actually make written statement and a set of rules for advisers to follow.

    These suggestions may seem very silly to anyone that workers outside our industry, but then simple does not create jobs and keep more people employed regulating the few that remain.

  6. Where does £500 go, when most PI insurers impose a £10,000 excess on every transfer case and you wonder why the system is in chaos.

  7. I hope the FCA & Treasury have taken note of the constructive criticism of my peers above.I fear that whilst they may read it, they will not take on board the comments however.

    • Having received an FOI response to queries about the FAMR decision with regard Longstop and FOS and Treasury emails, they may say thety listen to advisers, but either they are deaf or they ALWAYS think they know better as whilst the FOS told the FCA reinstating a longstop would be difficult they did not refuse at the FOS to discuss and consider a solution, that appears to be down to Mcdemott (FCA) and Roxburch (Treasury) and the logic of their decision remains explained inadequately and with unsufficient documentation of the discussions which take place (i.e decisions made behind closed doors with no effective challenge)

    • Phil, I went to a FCA risk awareness workshop, some time back, and not really sure how the subject came up but one of the FCA speakers made mention of posts on subjects from MM and others, he proceeded to say that these are read by FCA staff and the press office, and it gives all a good laugh !

      This sums up just how much they think of the people they regulate ! and indeed how much they value our opinions and thoughts.

      Institutionalized prejudice, and arrogance runs right through the lot of them like a stick of rock.

  8. I think it demonstrates a reaction to the continual unprofessional rubbish you espouse daily. Every article is an opportunity to attack the system, the unjustness the percieved personal attack on you and your business. Every interesting and debatable comment is followed by a frankly depressing one of yours.

    • When we consider how unprofessional the FCA and FOS are, when we consider that they never bother talking to the people that actually give the advice, or ever attempt to put themselves at the sharp end and see how it works in reality (not in their idealised dreamworld), when we consider that these attitudes have been going on for at least 2 decades with zero sign of any change, are you honestly surprised that many good people in the adviser community are sick to death of the situation and being persecuted for no reason?

      Nope, instead you think that everyone should carry on being nice and doffing their caps, because to do otherwise is “un-constructive”.

      Well being constructive has had about zero effect over the last 20 years or more, so I can’t say I’m surprised that more than a few people now don’t bother and vent. After all, it would be impossible for it to have less effect.

  9. Hard to call it an allowance as it comes out of the policy value.

  10. Excellent !!! Comment (if is indeed directed at me) it made my weekend !
    However you are wrong on one point I don’t take anything personally or a direct attack on my company, but it is against the very job I do and more importantly my clients !

    Maybe you work at the FCA ? And feel you dont deserve the criticism I give you (the FCA)….. Well ditto I abhor the criticism and punishment it serves to my industry every single day !

    Maybe you need to realise …. There is no “debate” the FCA makes the rules we (are expected) obey ! The trouble is FCA dogma is not working but hey lets just all follow along blindly ……

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