The Department of Work and Pensions Committee has announced that it has commissioned a new report “Protecting Pension Savers…” to look in detail at the issues affecting pensions since the introduction of pension freedoms back in 2015.
The Committee has said that the report will look into a number of key areas which it is concerned about, including the advice allowance, the advice definition and advice take up levels.
In terms of the advice allowance the Committee is concerned that the allowance is currently underutilised and hardly ever used. Brought in in 2017 the advice allowance lets a pension holder withdraw £500 form their pension, up to three times in order to pay for advice. However, very few people know about the allowance for Pension Help and in any event £500 is not enough to pay for advice in most instances. Especially when you consider that there is a lack of adviser capacity across the country. This is made worse where there is a final salary element to an individual’s pension holdings, because that in turn requires specialist advice and the number of regulated pension specialist firms has fallen over the last couple of years from over 3,000 to about 1,200 as a result of FCA crackdowns.
The advice definition needs to be reviewed in the context of this advice gap issue. The Committee wants to investigate whether a better definition can be devised to clarify the difference between advice and guidance. Currently advice firms don’t want to get involved in guidance because they are concerned about the regulatory impact and risks. Even the Money and Pension Service are reluctant to get involved because of the potential regulatory costs. The Committee is asking the FCA to get involved and create clearer boundaries between advice and guidance, including enhanced guidance which may include a limited element of personalisation. At the moment guidance cannot consider an individual’s personal circumstances.
As we’ve recently reported, the Committee is also concerned about the low take up of advice across the country, with only 8% of people using an adviser. The report will look at the reasons behind this and ways in which wider access can be created.
It is interesting how often well-meaning policies can have far reaching implications in the future. The Retail Distribution Review (RDR) which came in in 2012 was designed to overhaul the advice sector, do away with commissions and improve the advice process for clients. It achieved all this, but over half of the advisers left the industry and were not replaced. 10 years later only 8% of the population can afford or even access an adviser.