Source · Select Committees · Work and Pensions Committee
Recommendation 20
20
Acknowledged
Paragraph: 87
The Pension Advice Allowance allows £500 to be withdrawn from a pension up to three...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The Pension Advice Allowance allows £500 to be withdrawn from a pension up to three times in different tax years for advice.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.
Government response summary AI-generated
The government acknowledges the issue of deferred small pots and describes existing actions like Pensions Dashboards, Simpler Annual Benefit Statements and a de minimis on flat fee charges. They are working with an industry group to develop automated consolidation solutions but do not directly address the specific recommendations regarding the PAA.
Summary of the government's response below — read the verbatim text to verify.
Paragraph Reference:
87
Government Response
Acknowledged
HM Government · verbatim extract
Acknowledged
The government believes that individuals should be trusted with their own hard-earned savings and have a choice about how to access their pension income. The government introduced the Pensions Advice Allowance (PAA) in 2017 in response to the Financial Advice Market Review published in 2016. HM Treasury and the FCA continue work to monitor the take-up and effectiveness of the Pension Advice Allowance in the context of wider work to address the outstanding policy challenges in the UK’s financial advice market. Amending the level of PAA would depend on the changes that were being made. The regulations which established the PAA are part of the 2017 amendments to the Registered Pensions Schemes (authorised payments) regulations 2009 which sets out the conditions Government and Financial Conduct Authority Responses to the Committee’s Fifth Report 13 for the PAA payment including that the payment does not exceed £500. Therefore, if we were to make any changes it would likely require amending this legislation through a statutory instrument. We continue to monitor the uptake of the PAA to understand the success of the scheme. The government is keeping the level of PAA under review and continues to assess how well it is working, including considering any next steps following the evaluation of the Financial Advice Market Review in 2020 led by the Financial Conduct Authority (FCA).
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