We were cheered to see that the Treasury has announced that from April 2017, consumers will be able to access up to £1,500 from their pension pot to spend on financial advice. Savers will be allowed to use the cash on up to three occasions in £500 chunks.
Retirement has become a whole lot more complicated. Getting good advice could make the difference between setting savers on a course towards that Caribbean cruise or counting the pennies in their local Lidl as they stock up on baked beans to fuel them through the UK’s perpetual winter.
£500 is a good start but if the entry-level cost of advice is around £1000, it will only get you so far. Handily the Government has also made it easier for employers to contribute to financial advice. As a result of the 2016 Budget employers can pay up to £500 towards individual advice for employees in the workplace without an income tax or National Insurance contributions benefit in kind charge. This is significantly up from the previous allowance of £150.
So it’s disappointing to glean from our latest research into workplace savings that most employers are not prepared to make any contribution towards financial advice for their employees. We found that 82% of employers said they would not be devoting any budget to it in 2017/18. Only 8% are offering more than £500.
Employers who are prepared to pay towards financial advice understandably require employees to meet certain criteria. Employers are more likely to pay for advice for employees who are near to reaching retirement age. They are also more likely to fund advice for senior employees, who often have more complicated finances and probably require tax planning because of the annual and lifetime allowances.
In fact we find that just over half of EBCs and corporate financial advisers are offering individual advice through the workplace. 60% of them see the total employee benefits revenue from advice increasing and only a handful of those consultants and advisers who offer individual advice through the workplace say it is not profitable..
The supply is there, so where is the demand?
Some employers that we spoke to do fund workplace financial advice and do think that it’s a valuable service. They worry about their employees’ financial future in retirement. Some are paternalistic. Others are frankly worried about a tier of older workers who are disengaged from their jobs but cannot afford to retire. Their fear is that older workers will clog up jobs, shutting down opportunities for younger people.
Our research shows however, that most employers don’t see financial advisers as the main source of education for retirement readiness. They think that within two years, pension providers will be the top source of education for retirement readiness. They also believe that specialist government guidance services will be a more important source of education than financial advisers.
Are we doing enough to educate employers about the value that financial advice can bring as an employee benefit? The answer appears to be no.
If cost is the main barrier for employers, other options are becoming available to suit different budgets. Robo-advice in the workplace can cost as little as £100. For employers with the scale to bring down the cost of acquisition for advisers, we could reasonably hope to see full fat, face-to-face advice being offered at that magic £1,000 mark.
No one wants the workforce to play Russian roulette with their retirement. The Government has improved the incentives for employers to offer financial advice. Now pension savers can access a total of £1,500 to top this up. We should be doing more to help employers see that financial health is just as important as physical and mental health and wellbeing at work.