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Topics: FSA| Income Drawdown| Flexible drawdown| Capped drawdown| Independent Financial Advice
The Financial Services Authority’s (FSA) review of the quality of point-of-sale income drawdown advice is in danger of missing a greater risk to clients, an expert has warned.
The FSA launched its investigation into the quality of drawdown advice in October last year, sending out questionnaires to firms to check they are implementing the latest rules properly.
The review also involves checking the quality of advice before drawdown rules were changed last April, the FSA has since confirmed.
However, the investigation has not focused on the ongoing advice given to clients who have been in drawdown for a number of years and who face the greatest risk from poor advice, Andrew Pennie, marketing director at Intelligent Pensions, said.
"The review is looking at the quality of point-of-sale drawdown advice, not the ongoing service provided by IFAs," he said.
Pennie added there is a risk some advisers have put their clients into drawdown and then failed to follow that up with appropriate advice on how to manage their pension pot.
"The FSA needs to ask advisers ‘what advice have you given to people who have been in drawdown for ten years?'.
"The regulator will probably get to this, but not during this review."
Pennie said that, between the ages of 70 and 80, clients in drawdown should be looking to annuitise in most situations as they are increasingly exposed to the risk of running down their fund or making investment losses which they do not have time to recoup.
A spokesperson for the FSA said: "This is an ongoing piece of work looking at the quality of advice for both new and existing clients on income drawdown products within the smaller retail intermediary sector."
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The "risk"....???
Do people really save into pension in order to then retire and maintain the crystallised fund in perpetuity? My guess is that they actually want to live as comfortably as possible via these funds. Why is spending a pension fund seen as a "risk"? My view is that not spending the fund at least partially is a bigger risk, given the taxes that apply to most pension funds on death. Bear in mind that many customers who use USP or ASP received a healthy dollop of tax relief when they paid into the fund, and that some of them are taxed at a lower rate than they received in relief going in...then season the mixture with a pinch of a 2 stage retirement (healthy from say 60 to 75, then slowing down a bit from 75/80 onwards)...basically my point is that pension funds are an asset which needs to be used for the benefit of the owners of the fund, and there is so much hand-wringing round this area by people who seem to know little and understand less about the long term process of retirement (not in particular this article but I mean in general). The rule seems to be "protect these poor fools from themselves, they know not what they do"...jeez, treat people like adults, explain the risks and benefits of each option (bearing in mind ATR and overall objectives, circumstances and tax position), and present and agree a suitable plan. Is that so different from how the guidance sits now?
Posted by: Pension sense
Flexible drawdown
Should be available as an option for anyone with a pension investment...
Posted by: Ken Durkin
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Do the maths
Under current GAD figures the Gilt rate is about 2.5% max drawdown is about 0.5% more (if that) than a conventional annuity (and of course doesn’t offer impaired rates). So let us presume a 6% rate. You then add the costs and probably arrive (being generous) at about 7.5% overall. Great – it is of course easy in current conditions to assure a client a compound annual growth of 7.5% - after all everybody is achieving this – if not more. So what is the risk dear FSA? Hardly a risk; more a guarantee of the clients losing money. By the time the regulator twigs this we will no doubt have a retrospective review and all sorts of panic.
Posted by: Harry Katz