Pension pot access could be granted up to 10 years before retirement in order to help people pay for advice, the Financial Advice Market Review final report suggested.
The final FAMR report highlighted research by adviser directory Unbiased in July 2015, which showed those consumers who had sought independent financial advice had increased their retirement savings by an average of £98 a month.
According to the FAMR final report: “FAMR recommends government explores options to give people access to a small part of their pension funds to pay for financial advice before normal retirement age.
“This nudge could take place five to 10 years before individuals reach their normal minimum pension age, currently 55, so the individual has enough time to plan for and, if necessary, step up their savings rate, ahead of retirement.”
While this is a good idea in principle, according to Chris Hannant, director general of the Association of Professional Financial Advisers, “it doesn’t address the fundamental challenge about lowering the cost of advice.”
Stephen Gazard, managing director at Bankhall, agrees: “There are caveats.
“The majority of consumers need financial products sold to them rather than making an unprompted, unsolicited decision to buy a financial product.
“This still fails to be understood. Customers often don’t see the need for financial advice, let alone have the means to pay for it.”
Former FSA head of retail investment policy, David Severn, adds if people do pay out of the pension pot, they may find this works against them.
He says: “A consumer who cannot afford advice unless they raid the pension pot is unlikely to have much money in their pension pot.
“So withdrawing some funds early reduces what the fund can eventually buy by way of an annuity, for example.”
Phil Brown, head of policy for LV, agrees, adding: “Without careful consideration, there is a real risk people may fall prey to pension scams.
“How much, and how regularly, people can take money from their pensions is something that will require close scrutiny.”
As part of the Financial Advice Market Review, industry figures and the Financial Conduct Authority’s acting chief executive Tracey McDermott considered whether commission could be reinstated to make advice more affordable.
The report acknowledged calls for the return of commission from some sections of the industry but stated there was “no case to consider this. FAMR is not recommending a return to commission-based financial advice”.
It added many respondents had expressed concern over potential consumer detriment stemming from the use of commission on non-advised sales, such as the sale of annuities.
According to the FAMR final report, the Financial Conduct Authority’s October 2015 Consultation Paper CP 15/30, Pension Reforms – Proposed Changes to our Rules and Guidance, included a chapter on such commission payments.
The consultation closed on 4 January 2016 and the FCA is analysing the responses to the consultation.