Points to remember • As of 14 December 2004, employers have been able to provide employees with access to up to £150-worth of pensions advice each year, tax free. • If that amount is exceeded, then the whole amount becomes subject to tax. • Advice on other financial services, such as investment and tax, is not covered. • Group presentations to employees may be a more cost-effective use of the money rather than face-to-face advice. • Many employees may need more detailed advice on their pensions, while others simply need help completing their application forms.
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In a bid to boost pensions take-up among employees, the government introduced a measure allowing employers to provide £150-worth of tax-free pensions advice to each member of staff annually. While most commentators welcome the move, which came into effect in December last year, they also agree that it is not enough. Advisers’ hourly rates for financial advice vary depending on the complexity of the advice being sought.
These range from £50 to £60 an hour for the least qualified adviser to anywhere upwards of £100 an hour for more qualified senior staff able to provide detailed advice. Full financial advice, however, requires research and a detailed initial questionnaire – known as a fact find – to establish an individual’s financial circumstances. "You certainly couldn’t complete anything within an hour," says Darrell Parsons, employee benefits director at John Scott & Partners. Unfortunately, the process is not helped by most employees’ complete lack of knowledge of their own financial affairs. "Most employees don’t even know how much they earn," he adds.
Mark Stopard, pensions specialist at Origen, is concerned that by enshrining a figure in legislation, the government has set a level that employers believe is acceptable. "It’s seen as a government endorsement of that level of spend," he says. Michael Whitfield, managing director at Thomsons Online Benefits, believes that the figure should be nearer £250, allowing a face-to-face meeting, including a fact find of 30 minutes and the writing of a report. However, he admits that the employee and adviser would probably have to meet at least one more time to tie up all the loose ends. The problem is that employees often need detailed advice. For example, they want to know what to do with the other pension schemes they already belong to.
Ultimately, employees will only be able to find the answer in a full individual consultation. What is more likely is that employers will opt for more cost-effective ways of disseminating pensions information. Mike Dowding, head of technical services at IFA firm PIFC, suggests that the most cost-effective way to use the money is to hold presentations for groups of 20 employees at a time. John Scott & Partners’ Parsons agrees, calculating that a series of 40-minute long presentations covering between 50 and 60 employees in the space of four or five hours should suffice. Nevertheless, advisers acknowledge that most employees need individual advice to help them make the right decisions about their retirement provision.
However, there is a tension between the most effective way to use the money and the detail of advice that is needed. If the government simply wants to persuade all employees to join pension schemes, then a combination of individual attention and group presentations may be the answer. While employees may be able to take on board the positive aspects of joining the pension scheme, they will need help completing their application forms and they may well require further advice about the schemes they already have in place.
As a compromise, Origen’s Stopard suggests that employees are dealt with three at a time. There is no room for a fact find or a written letter for each, but at least they would get help with their forms. The adviser could explain the questions and the employees would be in a better position to make their own decisions about whether to join, where to invest and so on. Another alternative is to set up a workplace surgery where times are booked beforehand or on an ad hoc basis for employees to see a financial adviser on a one-to-one basis. However, £150 per employee is unlikely to stretch far if take-up is high.