Pension advice allowance 'too low' for effective outcomes - Opperman

Pensions Minister, Guy Opperman, has warned that the current pensions advice allowance is “too low” and potentially too late in the retirement journey to effectively support members, confirming that an evaluation by HM Treasury is underway.

Speaking at a Work and Pensions Committee session, Opperman stated that the Treasury is undertaking an evaluation of the take-up and effectiveness of the allowance and is expected to report back later this year.

Additionally, he highlighted his concerns around the allowance's effectiveness.

Currently, pension savers can withdraw £500 on three separate occasions, for a total allowance of £1,500, from their pension to pay for financial advice.

“I do think it [the pensions advice allowance] helps, but it appears to be too low to be getting an efficacious outcome for the individual," he stated. "My view is that we should be looking at whether this is sufficient and whether we should be working with HM Treasury and the Financial Conduct Authority (FCA) to provide a better product.

"The pensions advice allowance is a good product but it is very late in the day, and most people have reached their decision making process at that stage," he added, emphasising the importance of earlier intervention through the use of mid-life MOTs.

"What I want to try and do is influence them at an early stage, hence why I believe the mid-life MOT, which also has benefits in terms of health and fuller working lives, is the right way forward."

Opperman emphasised that whilst this is a Treasury matter, the Department for Work and Pensions will “most definitely” feed into the evaluation.

However, he also stated that it is not right for him to say he had a “definitive answer at the present stage", and that he looked forward to hearing what the committee found on the issue.

Commenting on the plans, Aegon pensions director, Steven Cameron, has also highlighted the need for the review to go further than simply reviewing the monetary allowance.

He said: “We are pleased to hear that HM Treasury is reviewing the pensions advice allowance. 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 goes beyond simply reviewing the current restrictions of £500 not more than 3 times.

“We’d like to see the pension advice allowance merged with adviser charging (AC), which is currently a more popular means of paying for advice out of pension funds.

“There is no cap or frequency restriction on AC but it can only be used to pay for advice on the pension from which it is deducted. 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.”

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