Older pension plans to miss out on advice allowance

Many older pension plans will not have the facility to implement the Pension Advice Allowance, according to retirement specialist Intelligent Pensions.

Announced on 30 August as part of a government consultation, the allowance will give savers the ability to withdraw £500 tax-free from their defined benefit pension arrangements to redeem against advice costs. The intention is to encourage people to take retirement advice by removing the need to pay out large fees from current income and improve affordability.

Steve Patterson, managing director at Intelligent Pensions, explained that many older pension plans will be unable to make the payment, which could prove to be a hit or miss for consumers. 

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Mr Patterson said, “This could give rise to negative commentary in the mainstream press about providers not treating customers fairly, and might put other consumers off asking the question. If you are a product provider, with no existing mechanism to do it, why would you even bother?”

Originally outlined in the Financial Advice Market Review earlier this year, the allowance is due to come into force in April 2017. Also scheduled for April 2017 is the plan to increase the tax exemption for employer-arranged pension advice from £150 to £500, which was  announced in the last Budget. If both allowances are combined, savers could access £1,000 to pay for advice.

However, Mr Patterson believes the real issue is encouraging people to save from an earlier age and reverse the current “borrow and spend now” culture. He said the allowance represents a step in the right direction, but a great deal of work remains to encourage people to save.  

“Anything that improves accessibility to professional advice will help, but it is going to take much more to change people’s outlook and ambition towards planning for the future.”