Your IndustryApr 25 2018

Pressure mounts to double pension advice allowance

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Pressure mounts to double pension advice allowance

Pension provider Aegon is calling on the government to double the employers pension advice tax exemption to £1,000, since the current £500 is unlikely to meet the financial pension planning needs of most employees.

The firm's call is based on the findings of a report produced with the Confederation of British Industry, published last month, which showed that 56 per cent of employers believe that the government should extend this tax exemption.

According to data from the Money Advice Service website, the cost of advice varies depending on the situation, but it can vary between £75 to £350 an hour, with the average cost of advice in the UK being around £150 an hour, Aegon stated.

The employer-arranged pension advice exemption is the amount an employer can spend on pension advice per employee in a year, without the individual incurring tax as a 'benefit in kind'.

It can be used to provide workplace advice on pensions, and on general financial and tax issues relating to pensions, to help employees make informed decisions on saving for retirement.

This exemption was increased from £150 to £500 in 2016, which was a recommendation of the Financial Advice Market Review (FAMR) conducted jointly by HM Treasury and the Financial Conduct Authority (FCA).

The report also revealed nearly half (49 per cent) of employers want greater clarity around the regulations for providing pension information in the workplace.

The goal is that businesses are able to talk openly to their employees about the value of the pension scheme without stumbling into giving financial advice.

According to Kate Smith, head of pensions at Aegon, employers need a helping hand from the government to ensure employees are on the right track to financial security in retirement.

She said: "While many employers are taking positive steps to raise awareness and improve their employees' engagement with workplace pensions, there is a very real fear among employers that they could stray into regulated advice if they try to promote their pension plans to staff.

"Greater clarity of what they can and cannot say would be helpful. It would be great if the regulators could revisit this as part of their joint pension strategy."

The FCA and The Pensions Regulator (TPR) are working together on a pensions regulatory strategy, publishing in March a joint paper seeking industry views on their joint approach.

Ms Smith said that one way to avoid employers lack of clarity on workplace pensions engagement is to offer access to professional financial advice.

She said some employers are prepared to pay for this but advice typically costs more than the current £500 exemption.

She said: "Doubling it to £1,000 could remove that barrier and create an incentive for employers to offer further support.

"Auto-enrolment has been a great start in getting more people saving for their retirement. But too many people under save.

"We need to try to change people's mind-sets and get them starting to think earlier about what they want from their pension. Helping people to access advice via the workplace could make all the difference."

Alan Chan, director and Chartered financial planner at London-based IFA IFS Wealth & Pensions, said increasing the advice allowance is "a must."

He said £500 does not even begin to cover the cost of advice for any type of case and take-up of this allowance has been very low since it was introduced. 

Mr Chan said: "Advice is not just a matter of a short conversation - I wish it was that simple. 

"It is quite extensive and followed by lots of paperwork and if you factor in the additional regulatory and compliance costs, as well as the potential for complaints in future. It (£500) is just not viable.

"Doubling this to £1,000 will open up this market for some advice firms and hopefully this will translate to better outcomes for employees as they receive quality advice."

maria.espadinha@ft.com