The £500 pension advice allowance (PAA) is too low to achieve good outcomes for consumers and should be increased, the pensions minister has said.
Speaking at Work and Pensions Committee hearing on 27 January, Opperman said HM Treasury was currently investigating the allowance and would report at some point this year. He added, in his view, it was set too low and should be increased.
The £500 Pension Advice Allowance is in place to encourage people in money-purchase occupational schemes to access regulated financial advice.
Its usefulness was investigated during the Financial Conduct Authority’s Retirement Outcomes Review and Financial Advice Market Review and is again being looked at by government.
The allowance payment is intended to allow members and beneficiaries of defined contribution pension schemes to take £500 from their scheme to redeem against the cost of retirement financial advice, without incurring an unauthorised payment tax charge, according to the Treasury.
Opperman added it had previously been said that the amount of the PAA was “too low to provide a proper service”.
“It appears to be too low to be getting an efficacious outcome. The industry would always say that, but my view is we should be looking to see of this is sufficient, to provide a better product.”
Aegon pensions director Steven Cameron backed the HMT review: “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 three times.
“We’d like to see the PAA merged with adviser charging, which is currently a more popular means of paying for advice out of pension funds. There is no cap or frequency restriction on adviser charging 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.”
Opperman also said it was a good product but came too “late in the day” and intervention on retirement choices should happen a lot earlier.
He backed the Midlife MOT scheme, currently in operation at businesses such as Aviva and Hargreaves Lansdown, and said it should be rolled out more widely to help people engage with retirement planning earlier.
‘Advice is better’
Elsewhere, the minister told MPs “advice was better than guidance”.
Speaking about the government-backed service Pension Wise, he said it was unlikely the organisation would ever cross over into the sphere of regulated advice as it was a government-backed body and respected for its guidance-only services.
He said: “Advice and guidance are two very different approaches.
“We encourage people to take advice – advice is better than guidance.”