Just two providers offer advice allowance as review kicks off

Just two providers offer advice allowance as review kicks off

Low demand and preference for adviser charging are the main reasons just two providers currently offer the pension advice allowance, FTAdviser has found.

Out of the 11 providers asked, only LV and Scottish Widows currently allow clients to use the advice allowance.

It comes as pensions minister Guy Opperman revealed HM Treasury would be reviewing the allowance.

Article continues after advert

Earlier this week Mr Opperman said he believed the allowance - currently set at three lots of £500 a year - was too low to be effective but many providers have said the problems go deeper.

Of the two companies which offer it, LV said it had been available to its open and closed book pension customers since April 2017 but Scottish Widows told FTAdviser there has been “very little demand” with less affluent savers unprepared to pay for advice, even if it is coming from their pensions. 

The advice allowance was introduced in 2017 and allows defined contribution pension scheme members to withdraw £500 a year tax-free from their pot, up to three times in their life, to pay for financial advice.

It was a recommendation of the Financial Advice Market Review - conducted by the Financial Conduct Authority and HM Treasury - designed to help more people get access to advice who may not have been able to afford it from their disposable income.

But this initiative has had little promotion, with many providers choosing not to offer it.

Which providers offer the advice allowance?

Aegon x
AJ Bell x
Aviva x
Canada Life x
Fidelity x
Hargreaves Lansdown x
James Hay x
Prudential x
Royal London x
Scottish Widowsx 

AJ Bell said the rules surrounding the allowance were overly complex and too restrictive which is why it had chosen not to offer this to clients.

Adviser charging

The majority of providers preferred to use adviser charging to help people pay for advice.

Adviser charging is permitted by the Financial Conduct Authority as a way for paying for advice from pensions and other savings products.  

The rules operate slightly differently to the pensions advice allowance. For example, there is no limit on each transaction as long as it is to pay for a personal recommendation given by the adviser on the product that it is being paid from.  

Providers have found adviser charging meets the needs of clients better, offers more flexibility and is in greater demand than the allowance.

A spokesperson from Prudential said: “Prudential supports the principles of the pensions advice allowance, and we have investigated making this available.

“However, because there has been minimal demand from consumers, we have decided not to introduce a facility to use the allowance at this time. Adviser charging, which is available, can offer an identical outcome for customers and is frequently used.”

Aviva said it has seen very few enquiries about the allowance, but said it would continue to monitor the market, and if demand grows it will review our position.

However, the provider believes savers would get a better outcome from using adviser charging and was sceptical about Mr Opperman's suggestion that the financial limit could be increased.