Advisers have welcomed news the FSA is writing to advice firms about drawdown to monitor trends in the light of April’s new rules, as a remedy for drawdown abuse.

Commission loading

As the RDR draws closer, advisers might be tempted by drawdown’s higher commission potential to load up on payments, Brian Hill, partner at Hill Jones, said.

Commissions for drawdown tend to be larger than those for annuities. As the product itself is more complex and requires more work, it can justify higher fees post-RDR too.

Hill said the FSA is right to investigate the possibility of lucrative drawdown being sold inappropriately, as he has seen advisers lured in by this.

“I have heard of clients with £30,000 being put into drawdown, when the FSA recommends £100,000 as appropriate,” he said.

Client acquiescence

Pete Matthew, director of Jacksons Financial Services, said some advisers will help clients draw the maximum from their fund regardless of suitability, and that the FSA is looking for this.

“Drawdown is more in the public consciousness now, and annuities often look like a rough deal, but most people do not have the fund size or the appetite for drawdown risk once it is explained properly,” he added.

Andrew Pennie, marketing director at Intelligent Pensions, said removing the requirement to annuitise has worried the regulator.

“The FSA is concerned removing the age 75 rule could result in clients inadvertently staying in drawdown longer than they really should,” he said.

Advisers’ options

Advisers tend not to use the full range of options available to them when recommending retirement solutions, Hill said.

He said the FSA needs to ensure advisers are properly assessing client needs rather than taking a one-size-fits-all approach.

Yvonne Goodwin, director of Yvonne Goodwin Wealth Management, said: “We spell out all the risks and ensure everything is suitable for clients, but the FSA is likely to be checking IFAs are meeting people’s needs suitably.”

New drawdown rules

From April this year investors can access flexible drawdown, withdrawing any sum provided they have a secure income of £20,000 per year, or capped drawdown of the equivalent annuity rate.

The capped drawdown annual limit was cut from 120% to 100% of the GAD rate

Investors must also review their income rates with an adviser every three years, or annually after the age of 75, rather than every five years.