Royal London’s response to the Pensions Advice Allowance

28 November 2016
HM Treasury’s consultation into the introduction of a pensions advice allowance closed on 26 October. Here are our thoughts.

Hopefully as advisers and therefore possibly the most interested of interested parties you also responded to the consultation. Royal London Intermediary deals exclusively through advisers and it is in our interests, as well as right, for us to support you but the more advisers put forward their own views, the more likely they are to be listened to.

Here is a summary of our formal response.

Q2 The proposed design of the Advice Allowance

We agree that using the adviser charge framework is the most efficient way to deliver the advice allowance. However many schemes will not be set up in such a way as facilitates Adviser Charging. It is therefore important that customers can access those funds that can facilitate this form of charge to pay for advice across the entirety of their pension arrangements.

Q3. Amount & Frequency of the Advice Allowance

The proposed £500 limit on the Advice Allowance will be insufficient to pay for regulated advice when the customer has complex advice needs, however it will assist in meeting the cost of this advice and is therefore to be welcomed. When taken in conjunction with an employer’s increased tax exempt advice allowance of £500 it is a meaningful amount that can at least contribute to a comprehensive holistic advice session.

In terms of frequency of use of the advice allowance we see no need to set a limit on the number of times that advice is sought via the advice allowance. However it is incumbent on a provider to ensure that customers are not acting irresponsibly and exhausting their pension savings. Providers should provide warnings if they see customer behaving in ways that would compromise their long term retirement income.

Q4. What age should the allowance be available from?

We do not see the need to apply a lower age limit on accessing the advice allowance. 

Q10. How much of the pensions market will offer Pensions Advice Allowance to customers?

In reality only the current generation of pension products offer adviser charging, most products do not have this facility. In practice we can see that the customers seeking to use the advice allowance will be taking the money from their current, modern product to pay for advice on the whole of their pension portfolio. 

The importance that we place on timely impartial advice in achieving the best outcomes for customers means that we will be offering access to the advice allowance wherever possible. We have no insight into the intentions of other providers.

We would support measures to permit the block switching of pension products from older contracts to current generation of flexible products where this is demonstrably in the best interests of customers. This will require regulatory intervention to permit bulk switching.  For certain contracts, especially those with guaranteed elements it may be prohibitively expensive especially if manual transactions are required.

About the author

Fiona Tait

Pension Specialist

Fiona joined the life and pensions industry in 1989. She is a Fellow of the Personal Finance Society, an Associate of the Chartered Insurance Institute and is currently Vice-President of The Insurance Society of Edinburgh. Fiona specialises in the areas of at retirement planning and pensions and divorce.

Last updated: 14 Dec 2016

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL.