The government’s pension advice allowance has come into effect but questions have been raised about whether the sums add up.
HM Treasury has introduced rules which mean savers will be able to access £500 a year a maximum of three times to pay for financial advice.
The introduction of the allowance has been plagued with questions about whether it would be enough to pay for advice and whether providers would be ready to offer it.
Geoff Towers, chief executive of BNY Mellon’s Pershing, said the introduction of the allowance was positive.
He said: “While £500 is unlikely to cover the cost of quality retirement advice, it could be the first step towards developing a relationship with an adviser, who then has the opportunity to show the real value that they add over the long term.
“Clients rightly deserve fee clarity and fair charges, but there is a basic cost to advice provision.
“While some advisers may establish a ‘lite’ retirement model for simple cases, these are few and far between in our complex and convoluted pensions system.
“When the next generation of pure defined contribution, auto-enrolment consumers reach retirement then this might be a more interesting market.”
HM Treasury originally intended to allow the tax-free withdrawal of a single £500 payment but increased this to three withdrawals after a consultation period.
Brian Smyth, head of Benefit Solutions at Ascot Lloyd, said: “The introduction of a pension advice allowance is unlikely to be immediately popular as most savers either don’t know it exists, or have little idea of what they should expect for their money.
"Employers have a key role to play in driving education and ensuring that their employees seek optimal retirement outcomes."
There have also been concerns about whether pension providers would even be able to offer the allowance.
In February FTAdviser contacted a range of major pension providers to find out whether they would be able to offer it to all their members from this month’s launch date.
But 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 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 in 2012 did not allow for customer-agreed remuneration, a change brought in by that shift in regulation.
damian.fantato@ft.com
