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 to 10 years before they retire to pay for pre-retirement advice.

The Treasury then confirmed in the Budget it will consult on introducing a “pensions advice allowance” that will allow people to withdraw up to £500 tax-free.

It says: “The exact age at which people can do this will be determined through consultation. This means that a basic rate taxpayer could save £100 on the cost of financial advice.”

But it is not clear whether the funds will be released using a method similar to adviser charging, as a cash payment or in voucher form. A Treasury spokesman says this, too, will be determined in the consultation.

It is also unclear if the withdrawal will count as a benefit crystallisation event and so be subject to a test against the lifetime allowance.

Aegon pensions director Steven Cameron says: “Under adviser charging, the member instructs the provider to make a payment out of the pension and pay it direct to the adviser. The adviser can only accept this in return for providing advice. This ensures the withdrawal is used for its stated purpose.

“Under the proposed new approach it may be the intention that the provider pays the money to the individual, which creates additional challenges in monitoring its correct use. We are keen to explore whether a new approach is truly needed or if the existing adviser charging framework, which many pension providers already operate effectively, can be adjusted to deliver on the policy aim.”

Hargreaves Lansdown head of retirement policy Tom McPhail says while providers commonly facilitate adviser charging at the outset of contracts, it is far less common for fees to be taken from existing customers.

Apfa director general Chris Hannant argues early access to fund advice is not the issue.

“We want to explore whether the existing charging framework can be adjusted”

He says: “If the problem is people hitting retirement needing advice and they only have £30,000 or so, being able to take a bit out of a small pot doesn’t really help.

“It’s not helping the issue that people are approaching retirement with small savings. The fact is we need to lower the cost of advice and I haven’t seen anything yet from the FAMR that will lower costs.”

Dobson & Hodge financial services director Paul Stocks says: “I feel these things create more hassle than they are worth. It’s the same issue with the pension freedoms.

“Policies are only as flexible as providers allow them to be, so if this proposal goes ahead providers will have to facilitate the withdrawal.

“Are providers going to go through the headache of sorting that out? And if it does go ahead, why limit it to £500?”