FSA may investigate accelerated drawdown firms
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The FSA has warned it may investigate firms offering accelerated drawdown products if it finds they are being marketed, sold or used inappropriately.
Money Marketing revealed in October that Sipp and Ssas provider Talbot & Muir was allowing clients to withdraw 25 per cent of their pension fund each year in addition to the maximum allowed by the Government Actuary’s Department, even though exceeding this limit results in a 55 per cent tax charge.
The move prompted a barrage of criticism, most notably from Hornbuckle Mitchell, which claimed the firm was breaching HM Revenue & Customs rules.
A heated debate ensued between Hornbuckle and Talbot & Muir on the topic on this website.
Speaking to Money Marketing, FSA conduct policy division manager for pensions Milton Cartright urged firms to take “great care” when selling accelerated drawdown products, adding that the FSA may launch an investigation into the area.
He said: “Income withdrawal is a complex area that carries significant risks for consumers and is only suitable for certain people.
“Accelerated drawdown is in our view inherently more risky because it results in a product designed to run down a pension fund.
“For most people their pension fund is a very important asset and it needs to provide an income for rest of their life.
“It is very unlikely that this product would ever be suitable for very many people indeed it is difficult to see who it would be suitable for except in some very extreme and unlikely scenarios.
“Great care needs to be taken firms selling this product. We will look at this if it appears that these products are being marketed, sold or used inappropriately.”
He added: “A firm offering this type of product would need to consider their treating customers fairly responsibilities very carefully and that includes defining the target market for the product and monitoring that the product is not being used inappropriately.”
Hornbuckle Mitchell director Mary Stewart says: “I am not at all surprised that the FSA has expressed this view. Talbot & Muir’s relaxed attitude to unauthorised payments is clearly against the spirit of the legislation and invites pension-busting.
“The FSA was obviously going to have something to say about it. The risk is that this sort of approach brings the whole industry into disrepute such that everyone loses.”
Talbot & Muir director Nathan Bridgeman says: “What we are doing is within HMRC rules and HMRC has actually confirmed to us in writing that as long as we collect the tax correctly what we are doing is fine.
“This is not something we are marketing, it is simply a facility that will suit certain types of clients and it is always on a case by case basis and only after independent financial advice has been sought that we would look at these cases.
“If it helps someone to save tax ie. they are going to pay 55 per cent tax rather than 82 per cent tax on death post-age 75 then surely that has to be treating the customer fairly. You could argue that it is not TCF if you do not point out that it is available.”
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Readers' comments (19)
Incompetent Regulators Awards Team | 4 Dec 2009 1:17 pm
FSA scratching around for jobs are they????
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Christian Patricot | 4 Dec 2009 1:46 pm
Are T&M suggesting or advising their clients to re-invest part or all of the excess income into alternative products and earning fees or commission for doing so?
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pensionman | 4 Dec 2009 1:46 pm
I wonder who Hornbuckle Mitchell is going to pick on next? Who else takes a lot of business from them?
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Stuart Rathbone | 4 Dec 2009 2:03 pm
More nanny state can’t have people controlling and deciding what to do with their own money can we.
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Anonymous | 4 Dec 2009 2:06 pm
Clients are currently having to take annuities at present to access TFC whilst continuing to work where a drawdown facility keeping the income element invested to take when they stop work would be more appropriate in common in my network. When questioned I am told that this is due to FSA minimium drawdown rules. Under TFC leaving pension funds invested with nil income thereby providing a better annuity when clients retire seems sense to me,
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Julian Stevens | 4 Dec 2009 2:08 pm
I have a client who wants to do exactly this because he's so anti-annuity and he really doesn't care about running his pension pot down.
Of course, if the annuity trap no longer existed and any unspent funds could pass tax free into PP's for his children, then he wouldn't be too bothered.
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Stuart Duncan | 4 Dec 2009 2:12 pm
This is outside my area of expertise, but it always looked a bit dodgy when I saw the way that some firms were marketing it.
I am surprised that this hasn't been looked at before now. Apparently, the FSA are now reviewing the option of building a wall from Carlisle to erm, Wallsend to protect Roman settlements from the Picts.
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Evan Owen | 4 Dec 2009 2:39 pm
Why do we have the annuity trap that these 'consumers' are so desperate to escape from?
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David Trenner - Intelligent Pensions | 4 Dec 2009 2:53 pm
"I have a client who wants to do exactly this because he's so anti-annuity and he really doesn't care about running his pension pot down."
And no doubt you have told him all about Henry Allingham who bought an annuity at 65 and took income from it for 48 years. Sometimes the hardest job we have as IFAs is to persuade clients what is right for them.
For clients with decent sized funds and other resources drawdown is very attractive until at least age 70, but for most of them the exit strategy needs to include annuities.
Using the Talbot & Muir approach to pension busting is not a good idea.
Does anyone remember the Roux brothers SSAS?
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Phil Castle | 4 Dec 2009 4:18 pm
To Anonymous | 4 Dec 2009 2:06 pm, there is NO FSA rule which says you must not reccomend, not allow a client to make use of USP at a particular level. FSA "guidance" is that in their view, USP under 100k is innapropriate for the majority of individuals.
As with all situations, there are exceptions and ensuring you justify a variation from "guidance" to the client and yourself and are prepared to stand and justify your advice to the FSA (or your network) is what is essential.
I rarely arrange a lifetime annuity for anyone under age 60, whatever the circumstances, the issue then becomes whether the cost of advice of USP (inclduing fixed term annuities) outweighs the benefit to the client with smaller pots....
Your Network can legitametely tell you they will not support (and nor may their PI cover) USP under any figure it likes, but it is NOT an FSA rule.
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