Welcome for £500 pension ‘advice allowance’ but not all may have access

The plan is being called the pensions advice allowance and, if adopted, would come into force from April next year.

The initiative is seen as a response to concerns that people without significant wealth face an “advice gap”, although some advisers have questioned whether £500 would be enough to pay for a comprehensive look at someone’s entire pension arrangement.

The government said its plan is designed to make it easier for people to receive advice on the financial products that contribute towards their retirement income, such as multiple pension pots and other assets such as Isa savings.

The Treasury said research has found that when approaching retirement, only 22 per cent of people knew the value of their pension pot and only 14 per cent of people would be confident planning their retirement goals without financial advice.

Economic Secretary to the Treasury, Simon Kirby, who unveiled the consultation, said: “It is vital that people can access the financial help they need.”

However, to be an authorised payment under the scheme, the funds would need to be paid direct from the scheme to the financial adviser.

This means using adviser charging for advice on multiple pension pots, and other assets to be put towards a retirement income, would no longer be an unauthorised payment.

And HM Treasury has since admitted that some savers may not be eligible for the tax-free allowance.

Some advisers have said that the proposed scheme sounded similar to adviser charging via customer-agreed remuneration, which a number of providers already do not allow for all policyholders.

Adviser charging by customer-agreed remuneration is a way for clients to pay via a charge on their premiums or funds, facilitated by their product provider.

The Treasury’s consultation has acknowledged that some providers and trustees do not offer this type of adviser charging for some products or schemes because of low demand.

It has said the new allowance, and the tax changes which it heralds, could help mitigate this in part but it recognised some people might not be able to access it.

The consultation document said: “A benefit to introducing the pensions advice allowance would be that funds withdrawn from a pension product that offers adviser charging could now be used to pay for advice on pension products that do not. This is not currently permitted by the tax rules.

“Under the new system, if an individual had, for example, legacy pensions without adviser charging facilities and a modern defined contribution pension with adviser charging, they could be able to access the allowance this way.

“However, it is the government’s understanding that if a consumer does not hold any pension products that offer adviser charging, the allowance may not be available to them.

“This is likely to be mitigated to some extent as some providers are routinely transferring customers into newer products that commonly have adviser charging facilities.”