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.
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?
| Provider | Yes | No |
| Aegon | x | |
| AJ Bell | x | |
| Aviva | x | |
| Canada Life | x | |
| Fidelity | x | |
| Hargreaves Lansdown | x | |
| James Hay | x | |
| LGIM | x | |
| LV= | x | |
| Prudential | x | |
| Royal London | x | |
| Scottish Widows | x |
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.
An Aviva spokesperson said: “If the financial limits were to be removed, then that would make [the allowance] a more attractive proposition. However, it would then look very similar to adviser charging, which we already offer to our customers.
"For us to introduce a new facility, like [the allowance], takes time, resource and budget. We would have to carefully evaluate that it would bring a real customer benefit, over and above what is already available, before committing to it.”
Meanwhile, James Carter, head of pension products at Fidelity International, said the company is currently reviewing allowing clients to fund advice from their pension as part of its development plans.
Mr Carter said: “There is a lot of market and regulatory focus on the accessibility and affordability of financial advice as well as how more personalised guidance can play a role in supporting consumers.
“We advocate simplifying and consolidating the options for funding advice from pension savings to give consumers more flexibility.”
Review of the allowance
Addressing the work and pensions committee earlier this week, Mr Opperman said: “[The industry] would always like a larger amount of money spent on a particular product that can then be beneficial to them.
“But my view is we should be looking at whether [the advice allowance] is sufficient and we should be looking at working with HM Treasury and the Financial Conduct Authority to provide a better product.”
Mr Opperman said the Treasury was in the process of evaluating the take up and effectiveness of the pension advice allowance.
A spokesperson for Aegon said: “With people needing advice on retirement savings more than ever, we need to find ways of helping people pay for this.
“We hope the review announced this week goes beyond simply reviewing the current restrictions of £500 not more than three times.
“We’d like to see the [allowance] merged with adviser charging, which is currently a more popular means of paying for advice out of pension funds.
“Ideally, under a merged approach, individuals would have the ability to take an uncapped amount from one pension to pay for advice on wider retirement planning.”
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know
