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Capitalising on the new pension advice rules

28 February 2017

Employer-funded seminars and workshops providing only generic pensions guidance certainly have a part to play but in an ideal world employees should receive access to one-to-one face-to-face regulated independent financial planning advice.

Recent research commissioned by Chase de Vere shows that those who receive this for their pensions and retirement planning are twice as likely to be confident in their knowledge of how a pension works and more than twice as likely to have been active in increasing their pension contributions during the last three years. They are also twice as likely to be confident they will be able to retire when they want to.

Fortunately, recent rule changes have made it much easier for such an approach to be funded. In the March 2016 Budget it was announced that the amount an employer can pay tax-efficiently towards pension advice will increase with effect from April 6th this year from £150 to £500 per employee. It can be provided via salary sacrifice and is Corporation Tax deductible.

At the same time it was also proposed that employees in defined contribution (DC) schemes can themselves access up to £500 from their pension pot with effect from this April 6th to fund regulated advice if they are within two years of when they intend to retire - even if they are under 55. A further announcement this February then confirmed an increase in the number of times they will be able to do this from once in a lifetime to three times, although no more than once is permitted in the same tax year.

The most recent of these changes could involve a few teething problems because, although it should be available to members of most group personal pensions (GPP) and other contract-based schemes by the time of its introduction this April 6th, it is unlikely that standard company DC schemes and the large master trusts will have updated their systems in time.

Furthermore, although those inconvenienced could switch to contract-based schemes to obtain the facility immediately, it may not be cost effective to do so because of the charges and the opportunity cost involved with being out of the market.

This lack of availability could prove only a temporary hitch in the case of providers that feel there is sufficient demand from scheme members to introduce the facility, but funding quality advice may require both employers and employees taking advantage of the rule changes. Obtaining a decent level of advice for relatively straightforward cases with average-sized pension pots is likely to cost around £1,000. This can include a full fact find, discussions about available options and positive recommendations on what to do.

Employers considering helping funding regulated pensions advice for employees should therefore check that their pension provider has the full capability. Should this be the case, they need to ask themselves whether they want to risk their employees losing some of the pension pot they have spent years helping them to build up.

Generic guidance provided by the likes of the Government's Pension Wise service can only achieve so much because our research shows that what employees really want is someone who is professionally qualified actually advising them on what action to take.  

However liberating the new pensions freedoms may be, they are not without their downsides. Many people find them complex to understand and some can end up taking risks that may not have been advisable. At the same time all the evidence suggests that numerous employees are struggling to pay for regulated advice out of income.

Many employers may therefore feel that it's worth extending the support they have been offering employees with their pension saving a little stage further by helping them to fund suitable advice. Those who do so are also indulging in a healthy dose of enlightened self-interest because employees who can't afford to retire can cause havoc with succession planning.

If you would like to find out more about what Chase de Vere can do to provide your employees with independent regulated financial advice on pension planning and retirement issues then please don't hesitate to contact us on 0345 300 6256.