Advisers have warned of the flaws of a proposal in the Financial Advice Market Review final report, which suggested savers should be allowed to dip into their pension pot to pay for advice.
The report, published on Monday (14 March), suggested one way of ensuring more people receive pensions advice is to allow consumers to access a “small part” of their pension pot to redeem against the cost of advice before the normal retirement age.
Michael McLintock, director at Lanark-based Adelp Financial Solutions, said this would not be a dramatic change, but more of a “psychological prod” to pension savers to seek advice “without the fear of having to write a cheque the moment they speak to an adviser”.
Tony Catt, compliance officer at Peacehaven-based Anthony Catt, echoed this saying the initiative would probably be popular among customers who would prefer to withdraw from their policy rather than have their pockets take an immediate hit.
“Often pensions advice should be fairly basic so the costs shouldn’t be that great. Most customers would rather it came out their pension, because they won’t notice the money come out and so it won’t seem like they are really paying.
“But it is difficult to see how it would reasonably be taken out of the pension, because either it is taxable or it is taken out of their tax-free cash.”
He suggested that the knock-on effects of taking it out of the pension are “quite considerable”, so the initiative would be a bad move. “It’s an acknowledgment that advisers need to be paid for their time, but when it comes down to representing good value for money, I don’t think it does.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, said it is possible to pay for advice with a pension already because there is scope for an individual to instruct their pension provider to deduct a fee to their financial adviser.
“However, there are practical limitations to that, particularly where you have got an existing pot and you are not transferring it, or where you have got one pot and you want advice on a number of different pots.
“I think some providers would be uncomfortable just dipping into that pot of money and handing it over to a financial adviser, even with the benefit of the member’s instructions.”
He added the FAMR team will be looking into strengthening the scope for individuals to use that facility to pay for advice.
Mr McPhail said: “For those that need advice, the means to pay for it should be made available where the capital exists and the pension pot is the obvious place to go.”
Alan Mellor, managing director at Phillip Bates & Co Financial Service, said he thought the idea was strange.
“It depends what that advice is,” he said. “If it is retirement strategy, then making that low-cost is a problem because it will be done without understanding the wider circumstances of individual tax position.
“There is a danger of dumbing down that bit of advice that can be so valuable to people,” he noted. “On the face of it, I am sure it does not help the people it is designed to help.”
katherine.denham@ft.com
