Millions of pension savers are not benefitting from a new tax break designed to help them take financial advice because major providers are not offering it to their customers.
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 tax break was a response to a regulatory review that found that the high cost of advice was deterring savers with smaller pension pots, who were at risk of taking poor investment decisions.
But most leading pensions providers, with millions of customers, are not offering their customers access to the allowance and have not upgraded their systems to facilitate it.
Firms not offering the new pensions advice allowance include Aviva, Aegon, Fidelity, Legal & General, Prudential and Royal London.
Providers are not required to offer the new allowance, although some offer their customers access to HMRC’s “adviser charging” facility to pay for advice costs directly from their pension pots.
But this advice is typically linked to the purchase of the providers’ own products, and does not cover competitors’ products or wider retirement planning.
Prudential said it supported the principles of the new allowance, and had investigated making it available. “However, because there has been minimal demand from consumers, and the PAA is complicated to administer, we have decided not to introduce a facility to use the allowance at this time.”
Aviva said that it used the existing adviser charging system allowing customers to use their pension savings to pay for advice. However, it said that “some customers will need to transfer to another product” to access this.
Royal London also uses adviser charging. “We’ve received no requests to use the pension advice allowance since its introduction in April, but we continue to monitor demand,” the company said.
Aegon said while it welcomed the “principle” of a tax break to fund advice, the allowance was “failing to take off” with customers and advisers.
A spokesperson added the firm would be in favour of the rules being relaxed on HMRC’s adviser charging system so customers could use this facility to pay for broader retirement advice, and not just advice linked to products. “This would represent the best of both worlds,” said Aegon.
News that many providers are shunning the allowance comes just weeks after a 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.
“Low demand should not be an excuse for providers to refuse to offer the allowance to their customers,” said Baroness Ros Altmann, a former pensions minister.
“Ultimately an adviser could help people contribute more to their pension in future, so it is short-sighted to prevent access to the Pensions Advice Allowance.”
Some major providers have made the allowance available to their customers including Standard Life, Hargreaves Lansdown and LV=.
“We strongly believe taking professional advice is the best way to ensure a secure, sustainable retirement income and want to support our members to do so,” said a spokesperson for LV=.
“Many investors need help with their retirement planning and in some cases that means paying for advice, which is why the Treasury introduced this allowance,” said Tom McPhail, head of policy with Hargreaves Lansdown.
Scottish Widows said it was planning to offer it later in the year, after its systems are upgraded.
A spokesperson for the Treasury said: “Providers now have the tools they need to help consumers use this allowance and support them to make the best financial decisions for later in life. We want to help people understand their pensions so they can plan for a comfortable retirement.”
Keith Richards, chief executive of the Personal Finance Society, the professional body for financial advisers, said it was “essential” that industry actively promoted the new allowance.
“Not only does it provide practical help for customers who want advice, but it also sends a signal about the importance of advice more widely,” he said.