Lord McFall, the former treasury select committee chairman has urged the government to offer more subsidies encouraging more people to take financial advice.
Employees who sign up to a corporate scheme, under current rules, can be offered tax benefits worth £150 annually for pensions advice. However if the cost of advice exceeds the £150 limit, the entire amount is taxed. Lord McFall, currently heading the chair of the workplace retirement income commission, has urged the government to expand the tax benefits in other advice areas.
“It is a good idea for the taxpayer to subsidise advice to poorer people. The current legislation for advice on pensions allows people to get £150 worth of advice. I think there is room for that in the rest of the financial advice area”, McFall said in a private investment summit in Bedfordshire.
“We have lost the savings culture in the UK. We need to bring that back and bring people into the financial community. The way that society is organised means that those who are financially excluded are socially excluded too”, he added.
Advisers seem to agree with McFall’s suggestion. “It is a good idea for taxpayers to subsidise advice. I think the way it would work is through the workplace, offered when employees go through life changing events like starting work, getting married and having children”, said Jason Witcombe, director at Evolve Financial Planning.
“Perhaps a tax break for employers who pay for financial advice or offer a scheme where employees can access advice on a subsidised basis would be useful. It is more valuable for employees to get decent advice than it is for employers to pay into a pension for them”, added Witcombe.
However, the dynamics of the new proposal may not be feasible, though it sounds good. “It is a good idea but it will never happen. The taxpayer is not going to be able to afford to subsidise anything new for a long time”, observed Andrew Merricks, head of investments at Skerritt Consultants.
The industry seems to have lapped up the idea. Andrew Strange, director of policy at Aifa said: “In this tough economic period we must do all we can to help people re-engage with their long term financial well-being”.
Greater tax benefits will attract wider public participation, resulting in better overall financial management at the micro level and boosting business for both advisers and providers, he said. “Access to independent financial advice is incredibly important in this process and we welcome the comments from Lord McFall”, he added.