PensionsFeb 8 2017

Providers incapable of delivering £1,500 advice allowance

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Providers incapable of delivering £1,500 advice allowance

The government's provisions, announced on Friday (3 February), allow members to withdraw up to £500 a year from their pension pot, tax free, to pay for an adviser at any age.

They can access that £500 tax-free allowance three times throughout their life, bringing the total allowance to £1,500.

FTAdviser contacted a range of major pension providers to find out whether they would be able to offer the service to all their members from the April 2017 launch date. 

Not a single provider said they would be able to facilitate savers dipping into their pensions to pay for advice by April, without including caveats.

The majority of providers FTAdviser spoke to warned a large portion of members would be excluded immediately due to the complicated structure of existing policies.

The most common problem was that pension policies issued before the introduction of the Retail Distribution Review (RDR) in 2012 did not allow for customer-agreed remuneration, a change brought in by that shift in regulation.

Standard Life told FTAdviser that, for this reason, it would only be able to guarantee members access to the money once they had begun drawing down on their pension - something that is only allowed after age 55.

A spokesperson for Standard Life stated the life company was developing the service "where there is the greatest need and demand - at the point of retirement", adding: "We are confident that for the vast majority we can and do meet that need."

A spokesperson for Zurich, meanwhile, stated adviser remuneration was allowed on "nearly all" of its policies issued post-Retail Distribution Review, but not on those issued before the legislation passed into law at the end of 2012.

A spokesperson for Zurich said: "In our experience, we have not seen significant demand for adviser charging and so we have chosen not to make it available on pensions taken out before RDR was introduced."

However, the spokesperson stated this should not stop the member accessing the tax-free advice allowance, because they would probably have another policy with a provider that did allow customer-agreed remuneration.

Prudential revealed it was in a similar position to Zurich, stating customer-agreed remuneration was available on all its "actively marketed" products, but not necessarily on those sold pre-RDR.

A spokesperson stated: "Prudential has many pension products and work is being undertaken to ascertain how we can ensure this facility is available to customers."

Royal London and Scottish Widows were also in the same position as Zurich and Prudential.

However, both said members in pre-RDR products could switch to a post-RDR policy in order to take advantage of the allowance.

A spokesperson for Scottish Widows pointed out the decision to remove all exit fees meant members could switch without paying a penalty - something that is not true of all providers.

Auto-enrolment master trust The People's Pension told FTAdviser it would definitely not be able to offer the service by April.

Director of policy and market engagement Darren Philp said The People's Pension did not currently offer member-agreed remuneration but was "seriously considering" doing so.

However, he added it would "require significant systems development to deliver and therefore will not be available at the outset".

Fellow auto-enrolment master trust Now: Pensions was slightly more positive. A spokesperson for Now: Pensions stated it had "the capability to offer the advice allowance facility".

However, the spokesperson added: "We also need to take into account the current low average fund sizes of our members, and the likely demand for such a facility."    

HM Treasury confirmed it would not be compulsory for pension providers to offer the facility.

The government is currently understood to be undertaking a three week technical consultation with the industry on the details of how the policy will work in practice.

james.fernyhough@ft.com