PensionsMay 4 2016

Providers could derail government advice allowance

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Providers could derail government advice allowance

Slow-to-adapt providers could stymie access to the government’s planned £500 pension advice allowance, because they still don’t offer all policyholders the option to pay advisers via customer agreed remuneration.

Extra costs incurred by savers in accessing the advice allowance could drastically exceed the headline £500 figure, unless some of the biggest names in financial services act to allow the payment method.

Scottish Widows, Aviva, Zurich and Prudential have all said they do not offer customer agreed remuneration, known as adviser charging, on all of their older pension products.

Their stance has sparked concern they would be unable to offer George Osborne’s Budget boost to those nearing retirement, the pension advice allowance - which could emerge as a government-mandated form of the adviser charging process.

Details of how the allowance - which will permit those under the age of 55 to withdraw £500 of their savings tax-free to pay for regulated financial advice - will work are still under consultation by HM Treasury.

But if it does rely on a form of adviser charging, savers could face having to transfer into a new product to access the £500 to pay for advice - at a cost of up to £3,000 in advice fees.

Simon Webster, managing director of Kent-based Facts & Figures Chartered Financial Planners, said: “Consumers accept the contract the insurance company sets up. There is not necessarily anything in that contract allowing you to take £500 to pay for advice.”

Spokesmen for Scottish Widows and Prudential have stated currently pension savers who want to use adviser charging as a payment method must transfer to a new product.

But Mr Webster said life companies are not being upfront about the costs involved in that process.

“There could an adviser charge of up 3 per cent so it may end up costing you £3,000 to get the allowance - arranging a transfer is an entirely separate job,” he said.

It may end up costing you £3,000 to get the allowance - arranging a transfer is an entirely separate job. Simon Webster

Adviser charging is a way for clients to pay via a charge on their premiums or funds, facilitated by their product provider.

It was introduced with the Retail Distribution Review in 2012, when provider payments to advisers via product commission was banned.

HM Treasury is currently consulting on allowing savers to access £500 from their pension pots in order to pay for advice.

A spokesman for Scottish Widows said: “For ‘at retirement’ advice... customers in older-style schemes will need to move into a new product where the adviser charge can be facilitated.”

The company is “looking into various options” for the advice allowance, the spokesman added.

An Aviva spokesperson said a large proportion of its active pension savers - where they are still in accumulation - can access adviser charging but those with older pensions will have to use other payment options.

They said they would look at ways to help customers access the advice allwoance “once we see more detail”.

Zurich does not allow adviser charging on pensions taken up before the Retail Distribution Review because it has not seen “significant demand”, a spokesperson said.

They added: “This does not mean we will be unable to provide access to the government’s proposed £500 pension advice allowance from the existing plan, but will need to review the detailed proposals before being in a position to comment.”

A spokesperson for Prudential said a minority of its customers with pre-RDR pensions do not have access to adviser charging and would need to transfer to a new product to use it, adding the company is “considering the government’s proposal to introduce a pension advice allowance”.

A spokesman for HM Treasury said: “The design of the pensions advice allowance will be a matter for consultation, we will seek to ensure the allowance will work for providers, advisers and consumers.”