In our latest insight we look at the Pension Advice Allowance, how it works, and what workplace pension providers have in place to facilitate its use.
The Pension Advice Allowance enables workplace pension savers to take up to £500 from their pension, up to a maximum of three times, to redeem against the cost of retirement financial advice.
Since 6 April 2017, pension savers from some workplace pension schemes have been able to take £500 from their pension pot to pay for retirement advice. The authorised payments do not attract the tax charge that applies when a workplace pension scheme makes an unauthorised payment.
Pension savers are able to utilise the Pension Advice allowance three times, although only once in any tax year. This is so that savers can take advice at different stages of their life.
Financial advice that is tailored to personal circumstances can help employees start from a stronger position when they begin accumulating their retirement savings. In the middle of their career it can help employees back on track if their needs or circumstances have changed and at the point of retirement it can help them avoid some costly mistakes. This will all save them money in the long run, despite the upfront cost of paying for financial advice.
However, not all employees will want to pay for financial advice or be able to afford the full cost of it. This can often be a barrier that stops them getting the advice they need. However, those who have defined contribution workplace pensions or those who are members of a scheme with a mix of DC and defined benefits can make use of the Pensions Advice Allowance.
Our data shows that less than half of workplace pension providers in our research can facilitate the Pension Advice Allowance.
Only Aegon Master Trust, Legal & General, Legal & General Master Trust, Scottish Widows, Scottish Widows GSIPP, Scottish Widows Master Trust and True Potential can facilitate a members Pension Advice Allowance payment.
These providers all enable the member to make the request in writing for the payment. True Potential also enable the employer and adviser to make the request.
Other than members of Scottish Widows, Scottish Widows GSIPP and Scottish Widows Master Trust schemes, members can also make the request via a combination of telephone, member portal and member app.
How can you request the Pension Advice Allowance payment?
The seven provider propositions who can facilitate a members Pension Advice Allowance payment, all make the payment directly to the chosen bank account of the financial adviser that the member has chosen to take advice from.
With more people saving into workplace pensions, and more choice than ever about how to invest or drawdown on those savings, the need to offer support to members for making the choice that are right for them is more important than ever.
However, high quality regulated financial advice is not cheap and not always affordable to those who need help to make retirement decisions.
Taking regulated financial advice can be crucial in helping scheme members work out if their retirement planning is suitable to provide them with the lifestyle they want in retirement. Therefore, staff being able to utilise the Pension Advice Allowance can be attractive to employers when evaluating workplace pension providers, especially for employers with a larger number of lower-paid employees who may otherwise struggle to access advice.
With our data showing that only 7 workplace pension provider propositions (from four providers) are able to facilitate the Pension Advice Allowance, employers and their advisers need to consider whether not being able to take this allowance could be very detrimental to the retirement outcomes for their members.