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The FSA has urged advisers to think ‘very carefully’ before using accelerated pension drawdown schemes.
It warns schemes like Talbot & Muir's, which allow consumers with an alternatively secured pension (ASP) to take pension income above Government Actuary Department (GAD) limits, are likely to breach TCF.
Speaking at a conference in London, the FSA's manager of pensions and other products policy, Milton Cartwright, says the regulator will be keeping a close eye on the practice.
"Advisers and SIPP operators need to think very carefully before offering these products to consumers, as it is very unlikely an investor will benefit from having their pension fund run down to nothing," he says.
In October this year, SIPP provider Talbot & Muir (T&M) revealed it was offering Accelerated Pension Withdrawal to its customers. The product allows them to withdraw up to 24.9% of their pension fund, even if they had already hit their annual GAD limit.
T&M says the product falls within HMRC rules, and can help consumers avoid the 82% tax they would face on death, though they would still face a 55% charge for exceeding GAD limits.
The group says it has received a lot of interest in the products from advisers with top-end clients with specialist needs.
However, the product has been highly controversial and has been criticised by other providers and advisers.
David Trenner, technical director Intelligent Pensions, says: "Frankly I think Talbot & Muir are bringing the industry into disrepute. A lot of consumers will say they want this product, but it is highly unlikely to be in their best interests."
"Now the rules are starting to be abused, it is only a matter of time before HMRC crack- down, and the FSA seems to be taking an interest from a TCF perspective as well."
Nathan Bridgeman, director of pension consultancy at T&M, says he understands the FSA's concern surrounding the product, but says his firm has taken steps to ensure the product is not sold to unsuitable clients.
"We are not marketing this product in any way; it is just an option we decided to make available after some advisers said their clients could benefit from it," Bridgeman explains.
"It is a very niche offering, and we are examining it on a case-by-case basis to ensure the client is suitable for this type of retirement strategy."
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| Comment | FSA warns ‘running down’ pension funds not TCF |
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Rules
We have a set of rules that are giudelines when used to suit unnordinary clients, who presumsbly aren't daft, if this type of planning is constructive. HMRC are going to get their dues by the highger incomes. This is just another Labour bleat about an unfair and disproportionate tax application, possibly being softened, imposed by a government in panic that likes to treat the public unfairly, particularly when they reach 75.
Posted by: F Roberts
Objectionable threats AGAIN
I am not defending Talbot and Muir and i can't think of any of my clients for whom this woudl eb suitable BUT if I had a client for whom I thought it WAS suitable I would remind teh FSA that threats of this type over TCF which are not a rule or law, but an opinion, need to be balanced with a duty of care to a client (and their executors on death) who could bypass the FOS and go straight to law and say why did you NOT reccomend this course to reduce IHT. The court could easily find teh adviser to be professionaly negligent as a result of HEEDING the implied threat from the FSA. Does anyone remember the implied threats from the FSA to advisers when they were considering advising clients to take the hit and move out of Equitable with profits? When will the FSA STOP making threats which are not TEF (treating everbody fairly)
Posted by: Phil Castle
FSA warning on running down pension funds
The fact is that many clients could be in a better position with this sort of flexibility available. I didn't know anything about this product but I will certainly explore its possibilities. And until the FSA tells me that I need to refer all my clients to them so that they can give advice (and charge the clients outrageous fees), I will decide what is suitable for my clients. God, what did we IFAs do to deserve this bunch of interfering, incompetent, arrogant, self-serving twerps.
Posted by: bill wells
FSA & TCF
On average it takes 14 years to get your fund returned from a pension in the form of income. Now that's what I call treating customers fairly. Hello Mr Pot can I introduce you to Mr Kettle. Once again the FSA demonstrates it is out of touch with what both the consumer and industry need.
Posted by: Richard Hardy
TCF
Some very good points raised here. At Talbot & Muir we are singing from the same hymn sheet as the FSA. We fully endorse Mr Cartwright’s comments which are why we have never advocated or allowed our Accelerated Pension Withdrawal (APW) facility to be used, sold or marketed inappropriately. It is unfortunate that certain pension providers choose to get personal and attack a company that is facilitating the use of legitimate tax planning tools for IFAs. As professional trustees and scheme administrators, we feel that several points have been overlooked here: 1. This facility is in the HMRC Registered Pension Scheme Manual which is our pension rule book 2. We have in writing from HMRC that providing we collect the tax correctly they have no objection in principal with what we are offering. 3. APW business is only being introduced to us after advice has been given by an IFA. This gives the adviser the opportunity to explain all decumulation options to their clients and the various tax implications / death benefits 4. Our protocol is such that clients are having to read and sign a declaration to demonstrate they understand fully what APW is and what it does i.e. in keeping with TCF, there is an extra level of compliance we have imposed over and above what is necessary 5. APW may improve the tax position of those clients families who might otherwise face a penal 82% tax charge on death post age 75 within ASP. IFAs are using the facility to ensure clients pay 55% tax now rather than their families paying 82% in the future. This has always been a facility that the IFA can use for their clients. We are not saying IFAs should use this, rather we are saying IFAs should have all options and tools available, be it scheme pension, USP, ASP, APW or a combination to meet different client requirements.
Posted by: Nathan Bridgeman
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82% tax rate is TCF however
So one arm of the Treasury (the FSA) pronounces that extracting your client's pension fund is bad practice, while another arm of the Treasury (HMRC) is charged with the task of taking 82% from deceased ASP funds - despite the fact that HMRC and the pensions industry had negotiated a reasonable & fair way of preventing tax abuse of ASP funds by the rich, before that cretinous class war warrior Ed Balls stood up in the Commons and welched on the deal. Presumably that's OK under TCF because it's politically motivated!
Posted by: David L Williams