View more on these topics

Adrian Boulding: Drawdown investment pathways deserve another look

Adrian Boulding L&G 2012 - correct sizeAs part of its retirement outcomes review, the FCA has been looking at non-advised income drawdown policies; specifically, the fact too many people are leaving their savings in cash regardless of how long they intend to keep the money there for.

The regulator wants customers to set out their plans for the five years ahead.

The essence of its recommendation is that providers of income drawdown policies should offer a range of prescribed investment pathways for non-advised customers, under which the provider has picked a fund mix suitable for their intended patterns of drawdown.

The recommendation flowed from the FCA’s own research which found too many consumers were motivated purely by the desire to get hold of their 25 per cent tax-free cash as quickly as possible, paying scant attention to the remaining 75 per cent often left in drawdown pots.

FCA goes ahead with one-size-fits-all investment pathways for drawdown

The research found one in three consumers who had gone into drawdown post-pension freedoms were unaware of where and how their remaining money was invested. Nearly one in five had 80 per cent or more of their pot held in cash.

The situation has been made worse by the fact many providers are defaulting non-advised policyholders into cash or cash-like assets. Going forward, if customers want to keep their assets in cash, they must make an active decision to do so.

A finalised policy statement linked to these new investment pathways will be issued in July, with changes having to be implemented within the following year. So, what might investment pathways look like come July 2020?

Providers must offer one solution for each of the following objectives:

  • Option 1: I have no plans to touch my money for the next five years
  • Option 2: I plan to use my money to secure a guaranteed income within the next five years
  • Option 3: I plan to start taking my money as a long-term income within the next five years
  • Option 4: I plan to take out all my money within the next five years

The FCA is also proposing an additional five-year anniversary statement be added to the annual statement immediately before the customer reaches that point. This should be in the form of an enhanced prompt to review their investment decision.

Good ideas and best practice can flow both ways in our industry. It would make sense for IFA firms to consider whether some of the new rules about to be imposed on providers as a result of these changes might help them segment their own clients in drawdown.

Target practice: FCA takes aim at freedoms failures

If the FCA can receive data from execution-only shops about how many of the customers they have in each of the four options above, they may expect advisers to have completed the same sort of segmentation work.

And with the FCA mandating the investment pathways must also include a report on environmental, social and governance considerations, it might be worth getting ahead of the game by providing regular ESG reports too.

Adrian Boulding is director of retirement strategy at Dunstan Thomas 

Recommended

SimplyBiz signs deal with Taylor Wimpey for employee benefits tech

Adviser support service provider SimplyBiz has signed a deal with major house-builder Taylor Wimpey to use its new software, Zest, to administer employee benefits. SimplyBiz acquired employee benefits firm Staffcare in 2013, relaunching its proposition as Zest with a new technology platform at the end of 2017. It has announced a major deal for the business […]

Advisers missing out on intergenerational wealth transfer

Advisers are missing out on a siginficant amount of business by not ensuring they continue financial planning for clients’ beneficiaries, a new report suggests. Research into the opportunities advisers have to cash in on intergenerational wealth transfer by Octopus Investments indicates that most advisers have an existing advisory relationship with just 20 per cent of […]

Pension withdrawals hit record in Q4

The number of individual pension freedom payments hit a record 628,000 in the final quarter of last year, according to data from HM Revenue and Customs. The payments have steadily increased from 121,000 in the second quarter of 2015, which is when the figures date back to. But average pension freedoms withdrawals per person dropped […]

Can retirement saving trials save the self-employed from pension woes?

The Department for Work and Pensions is collaborating with the industry to test ways of encouraging the self-employed to save for retirement. Is the focus on marketing messages, tech and behavioural prompts enough to turn things around? There is a widening gap in retirement savings between the employed and the self-employed. The problem is that […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com