Reaching the places advice cannot reach



Only a handful of pension providers have adapted their systems to allow people to use the Pension Advice Allowance.

The pension advice allowance, introduced in April, allows pension savers to take £500 tax-free from their retirement funds to help pay for the costs of financial advice.

The providers not planning to offer this service cite a lack of demand either from advisers or from their clients to pay for advice this way. I have spoken to a few advisers and the consensus confirms a reluctance to get involved.

It would seem that setting a cap of £500 on the tax-break is seen as setting a cap on the cost of advice. Few advisers submit bills to clients which are less than £500. Then again , few advisers submit bills, most make their money from ad valorem fees from “money under advice”. The bill is a cumbersome means of alerting customers to the true cost of advice. The pension advice allowance is perilously close to being a bill.

Not only does direct disclosure upset the frictionless charging of “ad valorems” but it creates unwelcome administrative complexities between providers and advisers. Providers need to evidence that the money is for work carried out on the provider’s product and verifying this can be problematic. The policing of this service will only be called into question when it is abused, quite properly some providers consider this a risk with little reward.

But beyond the commercial considerations, there is a wider and more important question here. Are the people who the Government want to take and pay for financial advice, interested in doing so.  It is easy for white-collar civil servants and those in think-tanks to suppose they should, but there is little evidence that many of the 7m new pension savers we have in this country share that view. The only time that ordinary people pay professionals substantial amounts is when buying a property. The conventions surrounding a property purchase include substantial up front payments of which a professional bill is only one. We are a long way from any such convention at retirement.

This is of critical importance to understand. While we consider where we live our property, we do not consider our state pension our property , nor the string of payments from an annuity or indeed the payment of an occupational pension. This is because we do not have the rights to sell on the pension.

The pension freedoms have created a property market in deferred pensions, whether the pension is explicit (the defined benefit) or implicit (the defined contribution) and in making decisions whether to swap DC for annuity or maintain DB as a pension, we are taking decisions every bit as momentous as purchasing a property,

Indeed it could be argued that the chances of buying a dud property because of lack of conveyancing are a lot lower than the chances of investing in a pension scam without advice. A recent report by the Financial Conduct Authority found many over-55s making the most of the pension freedoms were acting without the help of an adviser, were at risk of high charges or poor decisions.

The obvious conclusion is that anyone taking decisions on their pension property rights should be required to use a regulated adviser just as anyone making a house purchase is required to use a solicitor.

There is a strong case to make those taking pension decision take professional advice

Yet we know this will not happen. It won’t happen for political reasons (it would be very unpopular) and it won’t happen because there aren’t enough advisers to go round.

Even if Government mandated that a decent slice of a pension pot (say £2500) could be used to get advice, nothing much would change (other than those already tax-relief advantaged would get yet more tax exemptions.

I am a former financial adviser and I can see no possible way of making compulsory financial advice at retirement work.

There is a stronger case for making at retirement decisions easier.

The obvious answer to the problems considered by the FCA in the Financial Advice Market Review (and the recent research mentioned above) is to make it easier for people to make good if not brilliant financial decisions.

We cannot all be our own Warren Buffets, our own chief investment officers. Most of us want to swap the money we have saved for a sensible plan to spend it. The annuity used to be a no-brainer product but it no longer makes sense – for most people. It has stopped being the default product just as Defined Benefit Schemes are no longer the default retirement savings plan.

We have replaced the old certainties, discredited as they are perceived to be, with the freedom to do what you want, but no framework in which to take those decisions (despite the best efforts of Pensions Wise).

It is time to look at the failure to role out the Pension Advice Allowance, not as a failure of providers and advisers but a failure of the system. It simply should not need a professional adviser to lay out at retirement options in a way that makes one a default.

We need a better product for those who do not want to pay for advice, a product that instinctively makes sense for the masses (like me) who do not want a DIY approach to retirement planning. I believe such a product is out there waiting to be built. It is not called “annuity”, “bank account” or “SIPP drawdown”, it is called a pension.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, advice gap, pensions and tagged , , , , . Bookmark the permalink.

4 Responses to Reaching the places advice cannot reach

  1. John Mather says:

    It is time to call a halt on the swipes at the advice profession

    It might help if like audits, (conveyance, medical diagnosis, dentistry, launching nuclear tipped ICBMs) advice was available from suitably (>level 4 ) qualified people. I have seen horrors to do with Fixed Protections lost by payroll and HR responsible for auto enrolling

    I think you describe your past experience as an “adviser” things have moved on since 1984 at that time many were no more than policy peddlers not advisers so good to make the distinction.

    Withdraw the fudge as the public don’t understand Guidance v Advice ( if anyone does) these services are a total waste of public money

    Then address the real issue of the pay gap, the economy, productivity and affordability

  2. lucian camp says:

    Massively agree with this Henry. 90% of the wonderfulness of the digital age is to do with making it possible for people to do things for themselves – and for this to happen, we need the Apples, easyJets, Expedias, Garage Bands, Amazons and all the rest to make it possible for us to do things which previously we felt obliged to leave to experts.

    For some reason the financial services industry is stubbornly unwilling to get this, continuing to believe that either we should leave things to experts or – even more foolishly – that we need to become experts ourselves before we can be trusted to look after ourselves.

    When a major player genuinely decides to make DIY personal finance really quick and easy – and when the regulator decides to help rather than put every possible obstacle in the way – the world will start changing remarkably quickly.

  3. Adam Saunders says:

    Well, expecting that I’ll probably be retiring with a pension pot that most financial advisors would laugh at, it’s unlikely that taking £2,500 out is going to be worth the return. My personal plan is to buy a licence for the pension software from Ferret Information and assume that my knowledge of pensions coupled with not being a complete doofus will be enough for me to be able to advise myself…

    Having exchanged emails with Gareth Morgan (from Ferret) it’s clear to me that it doesn’t matter what the size of your pension pot is – it still makes sense to get some form of advice. You might not be getting advice on tax loopholes that mean you can replace the Jag each year – but advice on how your pension pot might interact with state benefits could mean the difference between a retirement where you make ends meet and a retirement where you’re sat at home in 3 layers of clothing because you can’t afford to have the heating on that month. What I learned from Gareth is that the ‘obvious’ answers may not be so obvious.

    • Coo, thanks Adam. You’re entirely right though. The majority of people can’t afford or justify (and aren’t wanted by) financial advisers. Saying that they should have a monopoly of advice doesn’t make much sense therefore. Add to that the fact that, with the amounts involved, small differences in return are pretty irrelevant compared to the impact of benefits, tax – and costs – and people need help that isn’t focussed on product choice.

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