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&#39Drawdown is being missold on small funds&#39

The Income Drawdown Advisory Bureau has voiced fears that drawdown


products are being missold to clients who do not have a pension fund with


the necessary size.


The bureau believes the minimum fund necessary for a drawdown product is


£215,000. It warns that products are being sold to those with much less


capital.


An ABI report estimates that 16,000 policies were sold last year with an


average investment value of £115,000.


Another study indicates that the average commission on such a product is 4.5 per cent although this can rise to 6 per cent in some cases.


The bureau says if commission of 6 per cent is charged on smaller


investments, the client&#39s best interests are not being served.


There is no general agreement within the industry on how big a fund should


be for drawdown product.


The maximum drawdown allowed is 8.2 per cent a year. The minimum is 2.87


per cent of the investment.


The type of individual who should be considering a drawdown investment,


according to the bureau, is someone who does not need the maximum rate of


income from the investment, who is not relying on the drawdown as their


only source of income and who has at least £250,000 to invest.


Bureau financial adviser Ian Padmore says: “Income drawdown is not for


everyone. Potential clients of drawdown products have to be made aware of


all the risks, not just of the investment but also of the associated


product costs.”

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