HMRC have just published revised guidance on how adviser charging will be treated when used in conjunction with annuity purchase and the open market option.
This was an important move from HMRC as the original guidance left advisers, providers and consumers uncertain about the way that the adviser charge could be facilitated.
The ABI had a number of concerns about the original guidance, particularly as it meant that a deduction at the point of annuity purchase had a bearing on the maximum amount of the lump sum available.
It was unclear in the original guidance whether this would have also been the case for other pension income options such as scheme pension and income drawdown.
The ABI worked with HMRC since the original guidance was published to try to remedy the more problematic elements of the guidance, whilst ensuring that HMRC rules are met effectively.
This has resulted in HMRC amending the guidance to reflect the position that the tax-free cash payment will not be affected whether advice is provided on the pension income option or not. However, the advice must be related to the pension product-related income options and not wider retirement options such as using ISAs, property or other financial products for retirement income.
The revised guidance, whilst not perfect, is good news for advisers, providers and consumers.
Advisers now have clarity over when their advice charge can be facilitated through the pension. The revised guidance is much better for advisers as it covers all options, including scheme pensions and income drawdown, and provides a practical way for advisers to meet the advice fee.
We were concerned that the original guidance may have acted as a deterrent for providers to facilitate adviser charging as it was administratively prohibitive and unclear what was required to classify the adviser charge as an “authorised payment”.
Providers now have certainty over when they are allowed to facilitate the adviser charge, although the responsibility for confirming whether the advice is authorised still lies with the adviser.
The most important result of the revisions to the guidance is that it will no longer act as a deterrent to consumers taking advice on their pension income and thus exercising their Omo. The Government is very keen to encourage greater use of the Omo, so it is good news that the revised guidance no longer creates an unintentional barrier.
Consumers will now not be disadvantaged if they choose to meet their advice fee through their pension. Consumers will be able to take the Omo and take advice on it which will help to maximise their pension income.
In addition, the guidance has also been expanded to include the treatment of consultancy charging. This has helped the industry to have certainty regarding authorised payments and enabled providers and advisers to correctly design their RDR business models.
The ABI is grateful to HMRC for their productive engagement on this issue and look forward to continuing this in the future.
Maggie Craig is director of financial conduct regulation at the Association of British Insurers