Friday, 24 November 2017

    Budget 2016: The changing nature of advice

    What do the budget announcements on advice and communications mean for the industry?

    One of the biggest set of changes announced in the budget (aside from the news of a Lifetime ISA) was around the changing nature of advice and communications

    financial advice

    The first announcement was that there would be an increase in the tax relief employers would get when providing advice to consumers.

    Previously, employers could provide £150 of pensions advice per worker before it is classified as benefit-in-kind for tax purposes, as long as:

    Now this ceiling will be raised to £500.

    In terms of who will pay for advice, the government will be consulting on the introduction of a Pensions Advice Allowance. This would allow people before the age of 55 to withdraw up to £500 tax free from their defined contribution pension to redeem against the cost of financial advice.

    Debbie Falvey, DC proposition leader at Aon Employee Benefits, said: “It’s good news that Chancellor has agreed to implement the Financial Advice Market Review (FAMR) recommendations on the provision and funding methods for financial advice.  The raft of changes already in play, pension freedoms, LTA and AA limit  changes have massively increased the demand for financial advice - and that was before today’s announcements. The Pension Advice allowance will be a useful way to remove one to the key barriers to seeking advice  - people don’t want to write the cheque. 

    “Simplifying the  rules on advice and regulatory uncertainty will be important in encouraging the development of advice services whether that be robo advice or more traditional offers.”

    Elliott Silk, head of employee benefits, Sanlam added:

    “Nearly one in five non-retirees in their 60s say they can’t afford a financial adviser, so it’s good news that in today’s Budget the Government has committed to at least consult on the Financial Advice Market Review recommendation that consumers be granted access to their pension pot early to pay for the cost of advice. However the timing of that consultation has been left open, which is concerning given the immediate and pressing need to help people better understand their options in retirement.

    In order to reduce confusion around guidance and advice the government has also promised to “restructure the delivery of public financial guidance to make it more effective”.

    Specifically, the government is planning to restructure the Money Advice Service, The Pensions Advisory Service and Pension Wise to create a new pensions guidance body.

    This, the government argues, will make sure that consumers can get all their pensions questions answered in one place, at all stages of their lives.

    There are also plans to introduce a new, slimmed down money guidance body. This will be charged with identifying gaps in the financial guidance market and commissioning providers to fill these gaps.

    Tobin Ashby, legal director in the insurance team, at Pinsent Masons, said:

    “In an interesting development, he has also suggested other providers will be identified and commissioned by the new guidance organisation to fill gaps in the guidance available to customers on their financial decisions.  There seems to be a clear move away from “advice” terminology outside the regulated sphere towards “guidance” for customers, which will help to remove at least one of the numerous areas of confusion surrounding the support of retail investment decisions.”

    Finally, the government has said that it will “ensure the industry designs, funds and launches a pensions dashboard by 2019.” It has said that this will mean that an individual can view all their retirement savings in one place.

    Eleanor Daplyn, partner at Sackers, comments: “we are confident this will encourage more people to start saving for their retirement at an earlier age.”  

    This is a positive move in principle. Proponents of a Pensions Dashboard have long been calling on the government and regulators to legislate around this.

    However - it is not clear whether this will be a DC focused initiative or whether the State Pension and DB schemes will be include. There is also no clarity on how this will be achieved in practice.

    Darren Philp, director of policy and engagement at The People’s Pension said: “The government needs to step up and show clear leadership on this. There are too many conflicts of interest to just leave the industry to get on with it.”

    Readers' comments (1)

    • Pensions dashboard by 2019? Look at klrge government IT projects and their lack of success. How will you get all pension providers to give relevant info. Pipe dream

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