The Association of Independent Financial Advisers (Aifa) has called on the government to consider the role of advice in the pensions debate, or risk a policy failure.
In its submission to the Department of Work and Pensions (DWP) – The Role and Value of Advice – Aifa states: “We believe that, regardless of the solution finally chosen, there will be a need for advice, and indeed, if this is allowed for at outset, it will actually assist with an improved policy delivering a better outcome and more confidence in the government’s proposals.”
It believes the current debate, and the Pensions Commission in particular, has under-estimated the need for advice and it claims pensions booklets cannot hope to provide the level of analysis and assistance offered by a professional adviser.
Although fully regulated individual advice will not be possible within the price restraints of the National Pensions Saving Scheme (NPSS), Aifa says there are two specific ways the government could help assist firms, their employees and the self-employed:
- The current tax regime provides for employers to offer their staff with advice up to £150 per person per annum, beyond which the whole amount becomes taxable. Aifa considers a fairer approach would be to tax only the amount over the threshold. If the ceiling was raised in line with earnings, or the index which applies to the NPSS, it says this would help foster workplace advice.
- The provision of “advice vouchers” for those most in need and at key stages, such as initial set-up, on becoming eligible to join the scheme and at retirement.
To meet the advice costs Aifa suggests the government’s current scheme charges should remain the same, but adds that an employer wanting advice or support with setting up the scheme or with ongoing services could have the facility to pay for additional services through the scheme.
Aifa warns the lack of advice could cost even more than advice itself, and states: “Advice at appropriate stages can ensure that costly mistakes are not made through poor decisions and that opportunities to maximise benefits are not overlooked.”
It believes advice and assistance, particularly for smaller employers, will be invaluable in dispelling any resentment and relieving the pressure on employers who will be required to implement a national scheme.
For example, it points out employers will not only have to do an initial set-up and manage ongoing administration but will also have to master communication with their employees.
On the employee side Aifa says auto-enrolment, with the ability to opt-out and no access to advice, means it will be imperative for employees on low income and those approaching retirement who have little or no existing provision to consider the viability to joining the scheme.
It believes the current proposals have not sufficiently addressed the prospect of allowing people to effectively get no real value from their savings because of the way means-tested benefits interact with soft compulsion in the shorter term.
It states: “In the absence of advice, which will be difficult to provide with any certainty, there should be government guidance on “stress-testing” the various factors to help to try to identify the threshold that would allow positive investment.”
But it adds, on a more positive note, there will be many people who will want to look beyond the NPSS and who will want to seek out extra information or advice on their arrangements at various stages.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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From 6 April 2019