Drop tax-free limit on workplace financial advice

The Government should look at lifting the £150 tax-free limit on independent financial advice paid for by employers.

The call has come from the Association of Consulting Actuaries (ACA) as part of its submission to the Workplace Retirement Income Commission chaired by Lord McFall.

The ACA argued that doing so would encourage more employers to provide employees with a better education on financial matters and savings provision.

Other recommendations made by the ACA included some form of tax incentive given to employers that provide schemes (either defined benefit or defined contribution) set at a much higher level than the total 8 per cent contribution which will apply when NEST, the new compulsory savings scheme, reaches full maturity. 

The ACA also wants to see a change in legislation that would allow scheme sponsors more flexibility in terms of scheme design. The ACA claimed that risk-sharing schemes could be made a much easier and more attractive option for many employers currently unwilling to take on the full risk attached to traditional defined benefit schemes.

The submission went on to put the case for helping employers to push the advantages of savings to their employees through a number of different schemes such as ISAs, SAYE and share option plans. There might be scope, too, the ACA continued, for looking at a way of bridging the gap between ISAs and pensions in order to strike the right balance between accessibility (which can be crucial for younger savers) and locked-away saving (which is more essential as retirement approaches).

Stuart Southall, the ACA’s chairman, commented: “We believe it to be essential to increase financial education, beginning in schools sand ultimately spreading throughout the entire population.  Linked in with this is the need to change the culture of society from one of ‘living for today’ and spending everything earned to a more balanced one in which saving and long term financial planning have greater prominence. 

“With many commentators highlighting severe and widening inter-generational inequalities, we would suggest that government could usefully consider how inter-generational transfers might be facilitated, not as a means of IHT mitigation, but so as to broaden the genuine reach and appeal of long term saving.”

Mr Southall added: “What is evidentially irrefutable is that in the private sector space voluntary DB provision is now in terminal and rapidly accelerating decline. Alternative DC provision is often very inadequate and even if this is added to an improved state pension, the ACA believes that many private sector workers could face a relatively impoverished retirement. 

“If this issue is left un-addressed, then the public/private sector pensions divide will become unsustainable, even after the potential scaling back in the former. 

“As Lord Hutton observed in his interim report on public service pensions, a ‘race to the bottom’ has to be avoided and reinvigoration of adequate occupational pension provision in the private sector should, in the ACA’s view, be considered a political necessity, not just a vague commitment.”

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