From 6 April 2017 it became possible for members of money purchase or hybrid arrangements to request that some of their benefits be paid as a pension advice allowance payment to help fund the cost of retirement financial advice. The conditions are set out in Regulation 21 of the Registered Pension Schemes (Authorised Payments) Regulations 2009. Payments must not exceed £500 and are limited to one per tax year and three in total.
Many trustees welcomed this new authorised member payment as a good idea when it was introduced and where necessary amended their scheme rules to give themselves flexibility to make these payments at their discretion. But how much has it been used in practice? Are members aware of it? And what quality of advice can be got at that price?
Speaking recently before the Work and Pensions Committee’s inquiry into pensions freedoms and protecting pension savers from scams, Pensions Minister Guy Opperman noted that the pension advice allowance “appears to be too low to be getting an efficacious outcome for the individual…the pension advice allowance is a good product, but it is very late in the day… I want to try to tackle these people a lot earlier…hence why I believe the mid-life MOT…is the right way forward.” His understanding is that HM Treasury are monitoring and evaluating the take-up and effectiveness of the pension advice allowance and will be reporting back in 2021.
There is no action for trustees to take now. Depending on the outcome of the review and any changes to the nature of the pension advice allowance, amendments to scheme rules and communications to members may be needed in due course.