Source · Select Committees · Work and Pensions Committee
Recommendation 20
20
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The Pension Advice Allowance allows £500 to be withdrawn from a pension up to three...
Recommendation
The Pension Advice Allowance allows £500 to be withdrawn from a pension up to three times in different tax years for advice. Either because of a lack of awareness or lack of demand the policy is not working. Its design has made it unusable by most savers. We believe that the broad aim of the policy is correct, but it has been poorly executed. We recommend a full review and overhaul of the Pensions Advice Allowance (PAA). The Government should: a) Remove the annual limit on the PAA b) Uprate the overall PAA in line with inflation each year c) Encourage MaPS and advisers to signpost the PAA d) Explore triage options to avoid use of the PAA by those for whom it is poor value, such as many DB savers or those with small pension pots.
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87
Government Response
Acknowledged
HM Government
Acknowledged
The growth in the number of deferred small pots in the automatic enrolment (AE) market and the impact on the consumer is an issue the government is determined to address. Our aim is to make the consolidation of deferred small pots the norm within the AE market. This would support an efficient, competitive workplace pensions system and provide better value for consumers. This is a complex issue, however, which will not be fixed through a single solution. Member-initiated consolidation has a clear role to play. We are taking action through Pensions Dashboards and Simpler Annual Benefit Statements to make it easier for savers to keep track of their pensions, including small pots – such tools that allow members to view all pots with different providers in a way that is understandable and could facilitate more consolidation in future. Alongside this we have taken action to protect savers through a de minimis on flat fee charges, which will protect individuals from unfair charges and reduce erosion of small pots. We recognise that automated solutions would be needed alongside member-initiated consolidation, but we need to be confident that the appropriate administrative system can be put in place to deliver this – in particular, this includes how to enable a low-cost mass transfer system in the AE market with proportionate safeguards for consumers. The department is working closely with the ABI/PLSA-led industry coordination group which is actively progressing the necessary detailed work and feasibility analysis on this to inform consolidation solutions and the underpinning administrative systems – including the parameters governing small pots in scope for consolidation – so that solutions provide overall net value for automatically enrolled savers. We understand that the ABI/PLSA coordination group expect to report on progress in May 2022.