Consultation outcome

Introducing a Pensions Advice Allowance: consultation

Updated 8 February 2017

1. Introduction

The government is committed to ensuring that consumers are supported in making good financial decisions. The pension flexibilities introduced in April 2015 gave savers the ability to access their hard earned pension savings flexibly, as best suits their needs. This means that many consumers have a wider range of options to consider when they reach retirement.

Additionally, more people are saving into pensions than ever before. Since the start of automatic enrolment, nearly 6.3 million people have been automatically enrolled into a workplace pension, and we expect around 8 million people to be newly saving or saving more, generating between £14-16 billion a year more in workplace pension saving by 2020.

With more people saving, and more choice about how to use those savings, the need to offer people support in making the choices that are right for them has become more pressing. However, the high quality financial advice available in the UK is not always accessible or affordable for individuals with lower levels of wealth and the government wants to ensure that those who want or need to are able to access financial advice to help them make these decisions.

The government announced at Budget 2016 that, as recommended by the Financial Advice Market Review (FAMR) it would consult on introducing a Pensions Advice Allowance. This allowance would allow people to take £500 tax free from their defined contribution pension to redeem against the cost of financial advice^{[footnote 1]}. The tax-free amount would be in addition to the tax free lump sum available when benefits are ultimately taken. The allowance would be available before the age of 55.

This consultation will set out the government’s preferred design for this allowance. It will also invite comments on this design and a number of outstanding policy questions.

2. The case for introducing a Pensions Advice Allowance

2.1 The Financial Advice Market Review

The Financial Advice Market Review (FAMR) set out a strong case for the introduction of this allowance.

FAMR found that there is an ‘advice gap’ for retirement advice for people without significant wealth. High quality financial advice can have a significant impact on retirement incomes, and people often increase their savings rate as a result of taking advice. For example, research by Unbiased found that those who sought retirement advice increased their retirement savings by an average of £98 a month. However, less than a third of people have accessed financial advice on their pension. FAMR found that many people perceive financial advice to be unaffordable or ‘not for people like them’.

FAMR therefore recommended that HMT explore options to allow people to access a small part of their pension pot before age 55, to redeem against the cost of pre-retirement advice. This recommendation was intended to increase the accessibility and affordability of financial advice at retirement in a number of ways:

• the allowance would help make advice more affordable
• people would not have to pay large fees out of their current income
• it would act as a nudge for people to consider taking financial advice

FAMR also recommended a second tax change. FAMR recommended that the government explore ways to improve the existing £150 income tax and National Insurance exemption for employer-arranged advice on pensions. This change would be complementary to the Pensions Advice Allowance.

The government announced at Budget that it would increase the tax exemption for employer arranged pensions advice from £150 to £500, and remove a cliff edge that meant that if an employer spent more than £150 on advice, the whole amount became taxable. It is possible that the tax exemption for employer arranged advice could be used in conjunction with the Pensions Advice Allowance, to give people access to up to £1,000 of tax advantaged financial advice. Both measures are expected to come into force from April 2017.

FAMR also made a number of other recommendations to make financial advice more affordable and accessible, including setting up a new Advice Unit to bring affordable automated advice models to the market more quickly, and producing new guidance to enable firms to give streamlined advice on simple needs. This consultation will explain the links between the Pensions Advice Allowance and the other recommendations.

3. Policy design

3.1 Summary

This chapter sets out the government’s proposed design for implementing the Pensions Advice Allowance. It invites comment on this design, and discusses a number of outstanding policy questions.

Currently, both Financial Conduct Authority (FCA) rules and the statutes and regulations governing pension schemes allow a provider, in limited circumstances, to withdraw funds from a client’s investment product to pay a financial adviser on their behalf, for advice relating to that pension scheme or investment. This is illustrated below:

However, under the current tax rules, using this method to pay for holistic retirement advice on all of an individual’s pension products would be an unauthorised payment and may incur a tax charge of at least 55%. By creating a new authorised payment for pensions, the government would allow this method to be used for holistic retirement advice without incurring any tax charges^{[footnote 2]}.

This consultation proposes that the Pensions Advice Allowance should be limited to £500 per use. The government is seeking input on whether to allow multiple uses of the allowance to enable individuals to get advice at different points of retirement.

The government proposes that the Pensions Advice Allowance should be available before the age of 55 to enable individuals to plan for retirement well in advance. This consultation invites comments on the exact age from which the allowance should be available.

The Pensions Advice Allowance would be redeemed against all fully regulated advice services, including automated advice models.

Offering the Pensions Advice Allowance would not be mandatory for pension providers. This consultation invites input on how to encourage the majority of defined contribution schemes to offer the allowance.

3.2 The existing system: pension schemes regulated by the Financial Conduct Authority

Advisers are remunerated by fees from clients known as adviser charges. In some circumstances, these fees can be paid from a client’s investment product (including pensions). The product provider enables this by reducing the value of the client’s funds by the amount of the adviser charge and transferring these funds directly to that client’s financial adviser. This is known as facilitation of adviser charges. Not all firms offer the facilitation of adviser charges.

The system is regulated by the FCA, and firms using it must comply with a set of rules, designed to prevent any ‘commission-like’ practices^{[footnote 3]}. These rules include:

• the advice fee must be transferred directly to the adviser
• the advice fee can be taken from the product only at the explicit request of the client
• all fees paid to the adviser must be recovered from the client – the firm cannot subsidise the advice
• the product provider may not pay out the adviser charges over a different time period to that in which they recover the charge from the client; for example, the provider cannot pay the entire advice fee to the adviser immediately and claim this back in instalments from their client

Whilst it is possible in limited circumstances to pay for some advice using pension funds through the adviser charging system, this is in effect limited to advice about the product from which the charge is taken due to the pension tax rules in the Finance Act 2004.

If funds taken from a pension scheme were used for wider retirement planning, including advice on other pension schemes or non-pension investments such as ISAs, this would be an unauthorised payment and taxable at a minimum of 55% under the pension tax rules.

For example, if someone withdrew £500 for advice from a pension product, the advice could cover whether the investment strategy for that product is right without incurring the unauthorised payment tax charge, but not whether other pension pots or non-pension investments are suitably invested.

Firms that offer adviser charging to their customers have administrative systems in place to facilitate this. Pension products that can be used for adviser charging are designed to allow occasional withdrawals and transfers to third parties. Not all pension products or firms have this functionality.

The government’s proposed design for the Pensions Advice Allowance, set out at section 3.4, would allow adviser charging to be used for holistic retirement advice that considers all of an individual’s savings. This is intended to minimise any burdens on providers by enabling them to make use of existing adviser charging functionality on their products.

The government wants to understand how widely the existing provisions for facilitated adviser charging are used.

3.3 The existing system: pension schemes regulated by The Pensions Regulator

Schemes regulated by The Pensions Regulator (TPR) are subject to statutory restrictions. Some of these restrictions are similar to FCA rules, and would need to be considered by a trustee contemplating a withdrawal of funds from a member’s pension savings to pay a financial adviser on the member’s behalf.

For example, the government has introduced regulations designed to ban any new commission arrangements in certain defined contribution pension schemes that are used by employers to comply with their automatic enrolment duties. These regulations prevent scheme members from being charged to cover the cost of commission payments made by service providers to advisers. However, the regulations enable members to agree to charges for advice and services provided by an adviser to the member where they provide their explicit consent, subject to certain conditions, including that the agreement must be in writing^{[footnote 4]}.

Similarly, members may benefit from statutory restrictions on charges under regulations introduced by DWP in April 2015. However, a member may opt in to non-core services and agree to charges above the level of the statutory charge cap, subject to certain conditions.

A regulated adviser facilitating their charges from a client’s pension scheme would still be subject to FCA rules regulating how they can charge for their services.

Pension schemes regulated by TPR also need to be aware of the pension tax rules on authorised/unauthorised payments when deciding what adviser charges to take from a member’s fund. These rules mean that, as for FCA-regulated schemes, adviser charges taken from pension funds cannot in effect be used to fund holistic retirement advice.

Question 1

How widely are the existing provisions for facilitated adviser charging used? The government welcomes evidence from pension providers and advisers on the types of products and transactions which use adviser charging.

3.4 Proposed design

The government’s preferred approach to implementing the Pensions Advice Allowance is to build on the existing adviser charging system. This would ensure that consumers benefit from the protections already in place in FCA rules and statutory restrictions, and limit burdens on firms.

Allowing people to use £500 from their defined contribution pension to redeem against holistic financial advice would require changes to the pension tax rules. The government proposes creating a new authorised payment for pensions. This new authorised payment would be for the facilitation of adviser charges up to £500, for the purpose of financial advice on retirement. To be an authorised payment, the funds would need to be paid direct from the scheme to the financial advisor.

This means that using adviser charging for advice on multiple pension pots and other assets to be put towards a retirement income would no longer be an unauthorised payment.

This authorised payment would be paid tax free for the individual. Individuals using the Pensions Advice Allowance would still be entitled to the same tax free lump sum as at present, when they ultimately come to take their pension benefits.

The government will consider carefully how to define the authorised payment so that holistic retirement advice is eligible for the allowance, but advice primarily for other purposes is excluded.

The existing FCA charging rules and statutory restrictions on charges would apply to this authorised payment. It would, essentially, be an ‘add on’ to the existing system. Any existing ways of facilitating adviser charging, for example for advice on an investment portfolio, would be unaffected.

One benefit of this model is that it would allow firms to deliver the Pensions Advice Allowance using their existing adviser charging functionality, without significant changes to administrative systems.

The process would also remain the same or very similar for financial advisers. The regulatory requirements for this process would remain unchanged, meaning compliance processes will not need to be altered. Currently, providers have ‘terms of agreement with authorised advisers’. Generally, these terms require as a minimum that the adviser is regulated to advise on the business they are charging for.

Where a client seeks to withdraw funds from a defined contribution pension scheme that is subject to the charge cap, then the client can express agreement in writing to the trustee or manager of that scheme to incur charges above the level of the cap^{[footnote 5]}.

Question 2

The government welcomes views on the proposed design of the Pensions Advice Allowance.

3.5 Amount

The government intends that the Pensions Advice Allowance should be a maximum of £500 for each use.

One important conclusion of FAMR was that automated advice services have the potential to increase the supply of affordable advice to the mass market. A number of automated advice services currently cost around £500 and the Financial Conduct Authority’s Advice Unit will provide regulatory support to firms to bring more affordable services to market.

The Pensions Advice Allowance could also be used as a contribution towards advice that costs more than £500. The allowance could represent a significant contribution towards the cost of face to face advice. This costs £150 per hour on average, and can take up to 9 hours for advice on pensions^{[footnote 6]}.

3.6 Multiple uses

The government is considering permitting savers to use the allowance more than once. This would allow people to take advice at different stages of retirement. For example, someone could benefit from taking advice to decide how to finance their retirement, and again later in retirement to plan for long term care costs.

There is a trade-off to be made. Allowing multiple uses of the allowance would give consumers the ability to take advice when their needs change. However, those who can afford to take financial advice regularly, or have an ongoing adviser relationship, could receive the benefit many more times than those who don’t.

There is also a risk of creating more opportunities for pension fraud. For example, if the allowance could be used an unlimited number of times, some people may see this as an opportunity to imitate an adviser and persuade individuals that they can withdraw the allowance multiple times from multiple pension pots for other uses. If £500 could only be withdrawn a limited number of times, this type of scam would be less likely to take place.

The government has identified an option that would allow people to get advice at different stages, but mitigate some of the potential issues discussed above.

This would be limiting the total number of uses (e.g. a maximum of three uses per person). This gives flexibility over when the allowance could be reused. The number of uses could be determined by identifying distinct ‘stages’ of retirement at which most people could benefit from repeat advice.

Question 3

The government welcomes views on this option. Are there any other ways to limit the number of times people can use the allowance?

3.7 Age

FAMR recommended that the Pensions Advice Allowance should be available before the age of 55 to allow savers to plan ahead for retirement, and if necessary step up their pension contributions. The government agrees that offering the allowance before the age of 55 could encourage savers to engage with their retirement planning early, and therefore improve retirement incomes.

The age at which people become eligible for the allowance could serve as an important ‘nudge’ to think about whether financial advice could benefit them. It is therefore important that the age of eligibility gives savers an opportunity to make changes to their contribution level well ahead of the average retirement age, but is not so early that they do not yet see a need to engage with retirement planning.

Question 4

What age should the allowance be available from?

3.8 Consumer awareness and nudges

The current adviser charging facilitation system is viewed and presented as an administrative facility, and awareness of it is likely to be low outside the industry. The government believes it is important that, unlike the existing system, the Pensions Advice Allowance is visible to people so that they are aware of the tax benefit available to them.

The government has identified a number of channels through which the Pensions Advice Allowance could be publicised. These include:

• pension providers
• employers
• guidance bodies

The government proposes that the FAMR Financial Advice Working Group, set up to deliver a number of FAMR’s recommendations, consider:

• designing and testing a set of nudges to prompt people to consider taking advantage of the allowance as part of its work on nudges and rules of thumb
• including making employers aware of the allowance in its ‘Employer Best Practice’ fact sheet

Question 5

How could consumer awareness of the allowance be increased?

3.9 People with protected characteristics

This consultation will consider whether the proposed policy would have any negative impacts in relation to advice for consumers in vulnerable circumstances.

The government will consider if there are any groups of people with protected characteristics under the Equality Act 2010 that might be impacted as a result of the proposed policy. The protected characteristics relate to age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.

Question 6

Are people with protected characteristics under the Equalities Act 2010, or any consumers in vulnerable circumstances, impacted by the policy proposed?

4. The scope of the allowance

This chapter sets out the proposed scope of the Pensions Advice Allowance, including which pension schemes would be able to offer the allowance, and which services could be paid for by the allowance. It then invites comment.

The chapter also discusses a number of difficulties that could arise when offering the Pensions Advice Allowance for certain types of schemes or products. This consultation aims to gather further evidence on the extent of these difficulties, and invites suggestions on how the government could help providers to overcome them.

4.1 Regulated advice and guidance

It is the government’s intention to restrict the use of the Pensions Advice Allowance to full regulated advice only. This means that guidance only services would be excluded.

The government appreciates that there is a case for widening the use of the Pensions Advice Allowance to include guidance only services. This could allow consumers to receive help on their pension that stops just short of a personal recommendation, and is therefore more cost effective for an adviser to deliver.

However, the government considers that, on balance, this potential benefit is outweighed by a number of important concerns. High quality guidance services are currently available either for free or for significantly less than £500, for example from PensionWise^{[footnote 7]}. If the Pensions Advice Allowance was applicable for guidance services, there is substantial risk of creating a £500 ‘price point’ for tailored guidance services. This would be to the detriment of people who cannot afford regulated advice, and risks widening the advice gap further.

Offering use of the Pensions Advice Allowance to unregulated persons creates consumer protection risks. As guidance can be delivered without FCA authorisation, individuals outside of the control of the FCA could be able to access funds from consumer’s pensions. It would also be more difficult for pension providers to protect consumers by screening for suspicious withdrawal requests. This is because they would not have the safeguard of checking that an individual is FCA regulated.

Additionally, if the allowance could be used for guidance only services, we may require new regulation. This is because the current FCA regulation only applies to the facilitation of charges for full regulated advice. The added complexity of introducing new regulatory requirements for the Pensions Advice Allowance may discourage providers from offering it.

4.2 Defined benefit and defined contribution pensions

Defined benefit (DB) pensions include final salary or career average schemes. These schemes, which typically provide benefits based on a member’s length of service and their final or average salary, do not accumulate a pension ‘pot’. Instead they build up an entitlement to a set (‘defined’) level of annual pension based on their membership history.

A defined contribution (DC) pension builds up a pension pot using an individual’s and their employer’s contributions (if any), plus investment returns and tax relief on those contributions and investment growth. The amount the individual receives at retirement is based on how much the pot is worth when they come to take benefits, rather than any specific promise.

The government intends that the Pensions Advice Allowance should be withdrawn from DC pension pots only^{[footnote 8]}.

One reason for this decision is that defined benefit pensions are not eligible for flexible drawdown, and do not require the holder to purchase an annuity. Therefore, the government considers that the decisions to be made at retirement are likely to be less complex, and the need for advice not as great. Additionally, a disproportionately complex system would be required to administrate the withdrawal of the allowance from a defined benefit pension.

However, if a consumer has both defined benefit and defined contribution pensions they would be able to use the Pensions Advice Allowance to get advice on all of their pension assets, including the defined benefit pensions.

Question 7

The government invites comment on the proposed scope of the Pensions Advice Allowance.

4.3 Defined benefit to defined contribution transfers

A common form of retirement advice for holders of a DB pension is advice on DB to DC transfers. The existing rules already allow for advice charges to be taken from the product in the case of advice on DB to DC Transfers. FCA rules permit product providers to separate out money to pay an adviser’s fee from the funds received that are due to be invested in the product.

This means that in the case of a DB to DC contribution transfer, the individual would not need to pay the advice fee upfront. It could be taken from the funds to be transferred into the new DC pension, assuming a transfer proceeds.

All employer funded advice on DB to DC transfers is already exempt from income tax, and exempt from employer and employee National Insurance Contributions under certain circumstances. Offering the Allowance for Different Schemes and Products

Although it would be relatively straightforward to offer the allowance for a product that already has adviser charging options, it may be more challenging for providers to offer the allowance for a product that doesn’t have this functionality. Additionally, there may be potential administrative difficulties in offering the allowance for certain types of pension schemes and products. Therefore, the providers of these schemes and products are less likely to offer the allowance to their customers.

The government is committed to ensuring that as many people as possible can access the Pensions Advice Allowance. Therefore, the government wants to understand these difficulties better so it can consider what actions might be taken to mitigate them.

This section sets out and invites input on a number of product or scheme specific difficulties.

4.4 Schemes without adviser charging

The government understands that some providers and trustees do not offer adviser charging facilities for certain products or schemes. This is because a low level of demand for charging facilities on these products or schemes means the investment in building in charging options is not always worthwhile.

A benefit to introducing the Pensions Advice Allowance would be that funds withdrawn from a pension product that offers adviser charging could now be used to pay for advice on pension products that do not. This is not currently permitted by the tax rules. Under the new system, if an individual had, for example, legacy pensions without adviser charging facilities and a modern defined contribution pension with adviser charging, they could be able to access the allowance this way.

However, it is the government’s understanding that if a consumer does not hold any pension products that offer adviser charging, the allowance may not be available to them. This is likely to be mitigated to some extent as some providers are routinely transferring customers into newer products that commonly have adviser charging facilities.

The government wants to explore how to maximise access to the Pensions Advice Allowance for consumers who hold pension products that do not offer facilitation of adviser charging.

Question 8

The government welcomes evidence on the proportion of products or schemes that currently offer facilitation of adviser charging.

Question 9

How could the government maximise access to the Pensions Advice Allowance?

Question 10

How much of the pension market would be likely to offer the Pensions Advice Allowance to their customers?

4.5 Guaranteed income products

There are some pension products for which the monetary value of the income is guaranteed; this could include retirement annuity contracts with a minimum income guarantee or Section 32 contracts with guaranteed minimum pension benefits.

For these products, withdrawing the funds to pay the adviser charge is not straightforward. This is because withdrawing £500 from the pension fund would not necessarily decrease the value of the benefits the individual eventually receives by £500. The individual would receive the advice, but would not forego £500. In practice; there would be no reduction to the underlying value of the future benefits. This would mean that the pension provider would have subsidised the cost of the advice, which is against FCA rules. A simplified example is illustrated in the box below.

Example A:

Megan has a pension pot of £40,000 without any guaranteed features.

Megan takes advice using the Pensions Advice Allowance, reducing the pension pot to £39,500. She then withdraws the money from the fund over time.

Not taking into account any further growth from investment, Megan eventually receives £500 less than she would have had she not taken the allowance.

Example B:

John has a pension pot of £40,000 with a guaranteed minimum pension of £8,000 per annum.

John takes advice using the Pensions Advice Allowance, also reducing the pension pot to £39,500.

John retires and begins receiving his guaranteed minimum income of £8,000 per year, just as he would have done if he had not used the Pensions Advice Allowance.

This means that the actual value of John’s pension has not decreased.

The FCA rules allow firms to reduce part of the client’s rights under the retail investment product to pay the adviser charge. This means that there is, in principle, no FCA barrier to firms offering the allowance for products with guaranteed features.

Essentially, a firm could pay the adviser £500, as long as the firm is able to reduce the underlying value of the individual’s future benefits accordingly. However, it is administratively difficult to determine what an appropriate reduction to the client’s benefits in exchange for the £500 would be.

Question 11

How do providers reduce the client’s benefits accordingly if they offer to facilitate adviser charging on products with a guaranteed income?

Question 12

Are there any difficulties in offering facilitation of adviser charging for products with other types of guarantee?

4.6 Occupational pension schemes legislation and scheme rules

Occupational pension schemes regulated by TPR which wish to introduce a Pensions Advice Allowance will need to consider statutory restrictions, such as those referred to in paragraphs 3.16 to 3.19 above. In addition, specific scheme rules may or may not contain a degree of discretion in respect of deductions from members’ pots to cover charges for advice members have elected to receive.

The government would be interested to know whether trustees may be reluctant to offer the Pensions Advice Allowance for these or any other reasons.

The government believes that it is unlikely that scheme rules would explicitly prevent the facilitation of financial advice by way of the Pensions Advice Allowance. However, the government would be interested in views on whether, without an explicit permission, some trustees may be reluctant to offer the Pensions Advice Allowance.

Trustees may also be concerned that they would be liable for the advice given by an adviser paid via the Pensions Advice Allowance. This is not the government’s intention. The government would therefore be interested to understand what mechanism, if any, trustees would favour in respect of members wishing to access an adviser through the Pensions Advice Allowance. This might include a member selecting their own regulated adviser for which they would be wholly responsible, or the trustees of a scheme selecting one or more advisers to which they would direct members (in which case, we would expect the trustees to take reasonable care in choosing the recommended adviser).

Based on responses to this consultation, the government will consider what action might be necessary to maximise access to the allowance for members of occupational pension schemes.

Question 13

The government welcomes views and evidence on any difficulties in offering the Pensions Advice Allowance presented by scheme rules or more generally in respect of members of occupational pension schemes.

4.7 Automated advice

Automated advice has the potential to deliver affordable advice to the mass market. It is the government’s intention that the Pensions Advice Allowance could be used to pay for automated as well as face to face advice.

FCA rules on the facilitation of adviser charging permit charges to be taken from an investment product by a regulated advisory firm or regulated adviser. Therefore, there is no restriction in principle that would prevent the Pensions Advice Allowance being used for automated advice.

The government would like to understand any administrative difficulties that pension providers or advisory firms may face in offering the allowance for automated advice services.

Question 14

The government welcomes views and evidence on any difficulties in offering the Pensions Advice Allowance for automated advice models.

Question 15

Are there any other products or schemes for which it would be more difficult to offer the allowance? How could the government address these difficulties?

5. Preventing fraud and misuse

This section calls for input on possible opportunities for fraud and misuse, and how these could be mitigated.

The proposed design of the Pensions Advice Allowance benefits from the protections already in place in FCA rules, and it is the government’s view that this limits the risk of fraud.

Only regulated advisers can withdraw money using the adviser charging system. This is an important line of defence against anyone trying to withdraw people’s money fraudulently; the pension provider can check whether a withdrawal request comes from a regulated person or not.

However, there is a risk that as awareness of the allowance increases, fraudsters see new opportunities in this space, for example imitating an authorised person to withdraw the allowance, or using the Pensions Advice Allowance to lend legitimacy to pensions liberation scams.

The government believes that limiting the number of times the allowance can be used (as discussed in section 3.6) would mitigate the risk of some types of fraud. This means that only a small amount of money can be taken from the pensions of each individual, making scams relatively unprofitable.

Question 16

Are there any other ways to mitigate the risk of fraud?

Question 17

Do you have any other information that does not relate to any of the consultation questions above that you feel would be beneficial to HM Treasury when designing and implementing the Pensions Advice Allowance?

6. Responding to the consultation

The government would welcome responses on its proposals for the introduction of the Pensions Advice Allowance.

6.1 How to respond

The government would welcome the views of all stakeholders on the issues raised in the document. The consultation begins with the publication of this document and will last for a period of 8 weeks. Please respond by Tuesday 25 October. Responses to the consultation should be sent to:

Assets, Savings and Consumers
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Or email: pensionsadviceallowanceconsultation@hmtreasury.gsi.gov.uk

When responding please state whether you are responding as an individual or as part of an organisation. If responding on behalf of a larger organisation, please make it clear whom the organisation represents and, where applicable, how the members’ views were assembled.

6.2 Confidentiality

All written responses will be made public on HM Treasury’s website unless the author specifically requests otherwise. In the case of electronic responses, general confidentiality disclaimers that often appear at the bottom of emails will be disregarded for the purpose of publishing responses unless an explicit request for confidentiality is made in the body of the response. If you wish, part, but not all, of your response to remain confidential, please supply two versions – one for publication on the website with the confidential information deleted, and another confidential version for the team managing the consultation.

Even where confidentiality is requested, if a request for disclosure of the consultation response is made in accordance with the freedom of information legislation, and the response is not covered by one of the exemptions in the legislation, the government may have to disclose the response in whole or in part.

6.3 Consultation principles

This consultation is being run in accordance with the government’s consultation principles. The government will be consulting for 8 weeks. This shortened consultation period is in order to give stakeholders adequate time to respond while also ensuring that government is able to implement the proposed policy in line with the timetable set out in the Financial Advice Market Review final report.

6.4 Confidentiality disclosures

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act (DPA) and the Environmental Information Regulations 2004). If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals, among other things, with obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality will be maintained in all circumstances.

An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the department. The department will process your personal data in accordance with the DPA, and in the majority of circumstances, this will mean that your personal data will not be disclosed to third parties. Freedom of Information

Any Freedom of Information Act queries should be directed to:

Correspondence and Enquiry Unit
Freedom of Information Section
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Tel: 020 7270 4558

Email: public.enquiries@hmtreasury.gsi.gov.uk

7. List of questions

Question 1

How widely are the existing provisions for facilitated adviser charging used? The government welcomes evidence from pension providers and advisers on the types of products and transactions which use adviser charging.

Question 2

The government welcomes views on the proposed design of the Pensions Advice Allowance.

Question 3

The government welcomes views on this option. Are there any other ways to limit the number of times people can use the allowance?

Question 4

What age should the allowance be available from?

Question 5

How could consumer awareness of the allowance be increased?

Question 6

Are people with protected characteristics under the Equalities Act 2010, or any consumers in vulnerable circumstances, impacted by the policy proposed?

Question 7

The government invites comment on the proposed scope of the Pensions Advice Allowance.

Question 8

The government welcomes evidence on the proportion of products or schemes that currently offer facilitation of adviser charging.

Question 9

How could the government maximise access to the Pensions Advice Allowance?

Question 10

How much of the pension market would be likely to offer the Pensions Advice Allowance to their customers?

Question 11

How do providers reduce the client’s benefits accordingly if they offer to facilitate adviser charging on products with a guaranteed income?

Question 12

Are there any difficulties in offering facilitation of adviser charging for products with other types of guarantee?

Question 13

The government welcomes views and evidence on any difficulties in offering the Pensions Advice Allowance presented by scheme rules or more generally in respect of members of occupational pension schemes.

Question 14

The government welcomes views and evidence on any difficulties in offering the Pensions Advice Allowance for automated advice models.

Question 15

Are there any other products or schemes for which it would be more difficult to offer the allowance? How could the government address these difficulties?

Question 16

Are there any other ways to mitigate the risk of fraud?

Question 17

Do you have any other information that does not relate to any of the consultation questions above that you feel would be beneficial to HM Treasury when designing and implementing the Pensions Advice Allowance?

1. The term ‘defined contribution’ should be taken to mean money purchase arrangements. ↩

2. The Pensions Advice Allowance will apply only to pension schemes registered with HMRC. ↩

3. Commission was a method of remunerating advisers for advice used prior to the Retail Distribution Review (2013). Commission-based advice allowed advisers to receive payment from product providers when they sold one of their products. This created potential for product bias in the industry, where the commission offered on a product influenced an adviser’s recommendation. The Retail Distribution Review banned commission for advice in 2013, and this is widely regarded as having improved professionalism in the industry. The government also brought forward regulations banning new commission arrangements in certain DC schemes used for automatic enrolment, which came into force from April 2016. ↩

4. See Regulation 11C of the Occupational Pension Scheme (Charges and Governance) (Amendment) Regulations 2016. ↩

5. See Regulation 9 of the Occupational Pension Scheme (Charges and Governance) Regulations 2015. ↩

6. FAMR’s recommendations intended to bring the cost of financial advice down. These recommendations include developing a new streamlined advice regime that enables firms to deliver advice on specific needs without conducting a disproportionately long and expensive fact find, and reducing the time that advisers spend writing suitability reports. ↩

7. The government recently consulted on a new delivery model for Public Financial Guidance. ↩

8. For the purpose of this consultation, a DC scheme is taken to mean an arrangement providing ‘other money purchase benefits’ as defined under section 153 of Finance Act 2004. It does not include arrangements providing cash balance benefits or hybrid arrangements. ↩