Incentives may go some way to boost take up in advice

  • What the government is proposing over the advice allowance
  • how the advice allowance will work
  • what could change the landscape for pensions advice
  • What the government is proposing over the advice allowance
  • how the advice allowance will work
  • what could change the landscape for pensions advice
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Incentives may go some way to boost take up in advice

There is a clear need to stimulate more people to seek regulated financial advice when planning for retirement. According to an Aegon survey carried out last year, only 14 per cent of people are confident to set their own retirement goals or know where to invest in order to meet these goals without financial advice.

At the same time, there appear to be clear benefits from getting sound retirement advice: Unbiased, the independent UK directory of advisers, found that those who sought retirement advice well ahead of retirement, increased retirement saving by an average of £98 per month as a direct result. 

On 30 August HM Treasury (HMT) launched a consultation seeking the industry’s views on its proposed £500 tax-free Pensions Advice Allowance, which was initially signposted in the Financial Conduct Authority’s Financial Advice Market Review (FAMR), published just two days before George Osborne’s last budget, on 14 March 2016.

This Budget also declared that it would increase the tax exemption for employer-arranged pensions advice from £150 to £500, and remove the ‘cliff edge’ that meant that if an employer spent more than £150 on advice for each workplace pension participant, the whole amount became taxable.

It was also stated that this tax exemption could be used in conjunction with the new Pensions Advice Allowance, to give people access to up to £1,000 of tax-advantaged financial advice. Both measures are due to come into force from 6 April 2017.

The above was a response to two recommendations laid out in FAMR: the first was detailed in Recommendation 13, tasking HMT with “exploring ways to improve the £150 income tax and National Insurance exemption for employer-arranged advice on pensions” to encourage more advisers to take the plunge into retirement planning advice. The second, (Recommendation 14) asked the Treasury “to explore options to allow consumers to access a small part of their pension pot before the normal minimum pension age to redeem against the cost of pre-retirement advice”.

Therefore the new Pensions Advice Allowance is a direct response to the latter recommendation. It means that consumers will be able take the £500 and use it to access an automated retirement advice service that provides a personalised retirement plan or, more preferably, put the money towards regulated face-to-face financial advice. It cannot be put towards unregulated advice or guidance, the consultation states, as otherwise it would be difficult for providers (and by extension the FCA) to keep an eye out for fraudulent tapping of people’s pensions by advice scammers.

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