Financial Advice Market Review  

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

In addition, there is some thinking on allowing consumers to tap into the allowance several times – perhaps up to a maximum of three times per person – at to-be-identified “distinct stages of retirement at which most people could benefit from repeat advice”.

Restrictions are likely to apply to this tax break. It looks likely only defined contribution (DC) pension scheme holders will be eligible. Furthermore, providers participating will need to facilitate adviser charging. So if providers cannot enable adviser payment through reduction of the value of the client’s funds by the amount of the adviser charge, and then transferring these funds directly to their client’s adviser, they may not be able to participate.

It also looks like pensions offering guarantees will not be admitted. Some of the annuity guarantees date from an era of very different interest rates, and can often double the apparent value of the pension pot. 

Defined Benefit (DB) pensions are also unlikely to be included, which will be a relief to trustees and employers already burdened by complex benefit structures. However, today, most people with a DB pension will also have a DC pension pot somewhere, so they will be able to take the Pension Advice Allowance from that.  

Therefore, assuming you have an employer or personal DC pension, you could well be eligible for £500 of tax-free for advice up to three times in the run up to retirement. In addition, those in DC-based employer schemes should attract a further £500 tax free cash to put towards advice. The implication is that this tax exemption on employer-arranged pensions advice is hard-wired into Pensions Advice Allowance, which would indicate that it could also be claimed up to three times in the run up to retirement.

However, are three lots of £1,000 available for advice over perhaps a 10-15 year period on the run-up to and into retirement, enough to bring more regulated advisers into the market for non-high net worth customers?

As the consultation paper indicates, any retirement planning financial advice event, combined with its associated administration, would amount to at least nine hours of an adviser’s time at an average of £150 per hour, leaving a bill of £1,350, so there will be a shortfall of perhaps £350 for each face-to-face advice session.

I believe that, welcome though these tax stimuli are to seek financial advice, there also needs to be a fundamental shift in financial education around retirement planning. The focus needs to be put much more on defining retirement outcomes, and then putting plans in place to realise them.