Bell slams FSA over drawdown statement
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AJ Bell has hit out at the FSA for suggesting income drawdown is inappropriate for people with pension pots under £100,000.
In a note outlining the public censure recently handed to Cheshire Life & Pensions, the regulator stated: "It is generally accepted that income drawdown can become increasingly unsuitable if the customer has a pot of less than £100,000."
But AJ Bell marketing director Billy MacKay says: "What the FSA is saying here sounds like a generalisation to me. If a client fully grasps the nature of the risks, why is it deemed unsuitable if they have a fund less than £100,000? It may be they have substantial non-pension assets to rely on alongside their pension fund."
An FSA spokesman says: "Suitable advice on income drawdown plans will depend on individual circumstances but they are usually unsuitable for a consumer where their pension fund is small and they have no other assets or income."
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Readers' comments (3)
you must be joking | 6 Aug 2009 1:12 pm
Another FSA generalisation
Again we see the FSA giving blanket comments which take no account of a particular client's objectives or circumstances not, MORE IMPORTANTLY, where the econmy is at the moment. Many clients will have seen fund values fall dramatically, and with gilt yields at historic lows, purchasing a fixed income via an annuity is likely to offer poor long term value. Surely, if a client is willing to take the chance that investment markets will improve again at some stage, and that gilt yields will ultimately rise, temprary use of drawdown could be beneficial irrespective of fund size!
Another consideration is client health... who in their right mind would buy a fixed income when they are in poor health?
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Phil Castle | 6 Aug 2009 7:33 pm
Question
If a client has just hit 50 and has a small pension pot (under 100k) should it have any exposure to equities?
if the answer is yes, then if the client has any debt with an interest rate in excess of even as low as 10%, then is it best advice for the client (subject to caveats about death benefit implications) to reduce debt by drawing their pension lump sum? If they do so, is it best advice to purchase an annuity when they are still working, or better to simply keep the monies invested until nearer the time they stop working and actually need an incomeand when they health and marital situation may mean they are entitled to a higehr single or impaired pension? Blanket statements from the FSA are counter productive as arguably, IF teh FSA are so worried about USP, but recognise the questions I pose here as an equivalent argument AGAINST Lifetime annuities, particularly at a young age of 50 or 55, should they not be mentioning that risk mitigating "third way" plans exist which ARE USP but have similarities without some of the downsides of a lifetime annuity. Living Times plan is a prime example of how a client can take their lump sum now and NOT take a direct investment risk, but without locking in to an annuity which all reserach shows even at 60 or 65, may not reflect the changing income needs of todays pensioner. Have the FSA been misquoted in their statement, or is it just that what they have been quoetd as saying as been "paired down" to cause an argument. The statement in itself I would agree with in principle, i.e. as a fund gets smaller (below £100k), it gets less appropriate for USP, but advice is NOT a one size fits all scenario or a bx ticking excercise.
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Evan Owen | 7 Aug 2009 1:00 pm
Balance please!
Personally I didn't consider drawdown an option for anyone apart from the sophisticated client with a total pension pot of over £250k. But that was only my opinion and this method of pension planning was always discussed with all clients. I don't argue with the premise that long term exposure to equities is a good thing, however I am glad I took the stance that I did before equities went south, so are Sesame no doubt. But, today is a different story, annuities are practically worthless in historic terms, equities are cheap and there is prospect for growth, and inflation of course. I feel confused now, too many choices, no wonder people complain when they lose money but keep quiet when they make a profit. After saying all this I find it incredible that the regulators still make blinkered statements which don't take account of the whole of a client's circumstances. I'm glad I'm out of this crazy industry, too may opinions spoil the broth.
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