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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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