Employers are being urged to increase awareness of the pensions advice allowance – a scheme that allows employees to swap up to £500 of their pay each tax year for regulated advice – amid anecdotal evidence from the pensions industry that take-up to date has been miniscule.
The salary sacrifice scheme, which was enacted in November’s Finance Act (No.2) 2017, can be used to access guidance on workplace pension schemes including auto-enrolment, as well as private pensions.
It can save employees up to £310 on fees each year, depending on their rate of income tax, by permitting employers to fund or reimburse the first £500 per year of advice for each employee as a tax-exempt benefit through a salary sacrifice arrangement.
The cost to employees is as little as £190 per voucher for those who earn between £100,000 and £123,000. Most basic rate taxpayers pay £290, while the cost is £265 for those earning £150,500 or more. The savings made are based on the tax and national insurance exempted.
However, the scheme has enjoyed relatively little take-up to date. Brian Henderson, director of consulting at HR consultancy Mercer, said there were “few, if any” employers offering the benefit, which he said could be down to the lack of publicity it has attracted. Around half of pensions industry consultants and providers contacted by People Management were unaware of the scheme, while others said it was not on clients’ radars.
Nathan Long, senior pension analyst at Hargreaves Lansdown, said his firm had seen “very little evidence” of the vouchers being used, with many employees put off by the £500 price tag. “We have seen a number of employers looking to better signpost their employees to advice, particularly at the point of retirement. Funding of employee financial advice is a great benefit for members, but I suspect most employers will be put off by the price tag,” he said.
Steve Webb, former pensions minister and director of policy at Royal London, said that although the allowance was a “good idea in principle”, employers needed to have open conversations with staff about the topic. “The pensions advice allowance has had very poor take-up so far. Previously, employers could only offer free financial advice worth £150 without it becoming a taxable benefit, so a £500 limit and a voucher scheme are a step in the right direction,” he told People Management.
So far, the only provider offering the vouchers is VouchedFor, which said it had experienced disappointing uptake. Its founder and CEO, Adam Price, told the Express: “I would urge all employees to lobby their employers for access to this scheme. It’s especially urgent for the 1.2 million employees who already pay for advice each year. Access to good financial advice is so important right now… very few employers are offering the scheme – hence few employees are aware of it.”
The introduction of the vouchers comes against the backdrop of a huge rise in auto-enrolment as smaller employers come on board with workplace pensions. The Department for Work and Pensions today (15 January) confirmed that take-up of workplace pensions is happening at the same rate for both male and female employees.
Take-up of pensions in the private sector increased from 40 per cent of eligible women in 2012 to almost three-quarters (73 per cent) in 2016, and take-up by eligible men increased from 43 per cent to 73 per cent over the same period.
These figures are only likely to increase as eligibility for workplace pensions expands. The government has announced plans to lower the age individuals will be auto-enrolled from 22 to 18, as part of its 2017 review into auto-enrolment. The plans are expected to take effect from the mid-2020s.
In addition, the level of salary employees and employers are required to contribute to pension savings is set to increase from April 2018. Employees enrolled in pension schemes must pay in a minimum of 3 per cent of their annual salary, with employers contributing 2 per cent – double the current minimum levels of 1 per cent each for employers and employees. By 2019, these levels will jump again, to reach 5 per cent for employees and 3 per cent for employers.