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Advisers warn FSA probe fails to consider phased drawdown

IFA firm Intelligent Pensions says the FSA has failed to consider phased drawdown as part of its review of advice following abolition of compulsory annuitisation.

Last April, the Government introduced a new capped and flexible drawdown pension regime and scrapped the need to annuitise or enter alternatively secured pension at 75.

Under capped drawdown, a person is able to withdraw pension income subject to Government imposed restrictions, which were put in place to limit the risk of someone exhausting their fund before they die. Under flexible drawdown, a person is able to invest their fund freely, provided they have secure pension income of £20,000 a year.

In October, the FSA wrote to IFA firms in an effort to determine the quality of advice being provided to clients in drawdown. Companies were asked to complete a questionnaire by November 30 as the regulator sought to “monitor trends” following the April rule changes.

Intelligent Pensions technical director David Trenner says the regulator failed to acknowledge the concept of phased retirement in its questionnaire.

He says: “The big problem we had with the FSA’s questionnaire is it did not take into account the concept of phasing, which is clearly now a major area of advice that the regulator should be taking a look at. It seems to view the retirement landscape as either annuities or drawdown, with nothing in between.”

Trenner says he has seen evidence of poor drawdown advice.

He says: “We have come across a lot of people who have had very poor drawdown advice. It is an area that is possibly going to get worse since the abolition of the annuity requirement at 75 because there are very limited circumstances when somebody should not buy an annuity at that age. If you are going to advise on drawdown, you need to have a process to provide ongoing advice. Drawdown is not a product, it is a service.”

Syndaxi Chartered Financial Planners managing director Robert Reid says advisers need to show they have reviewed drawdown clients’ portfolios regularly to satisfy the regulator.

He says: “There is a danger that people only do a review when the GAD limits change, which is every three years.

“That is the minimum requirement according to the Treasury’s rules but, in reality, advisers should be far more proactive than that because if there is a big market movement you need to take account of it. If you do not do that, you are not advising your client properly.”

Hargreaves Lansdown, which sells drawdown on a non-advised basis, has not been contacted by the FSA about the review.

Head of pensions research Tom McPhail says: “I can see why the regulator is focusing on this market at the moment because there are plenty of risks for investors. I had conversations with the FSA a couple of years ago about the extent to which drawdown misselling might be going on, so it has been on its radar for a while.

“Given its failures to intervene in some areas of market misselling, it is understandable that it is taking a close look at drawdown now.”

What has the FSA done so far?
In October, the FSA wrote to IFA firms as part of an effort to determine whether there were any specific areas of concern. The deadline for responses to the questionnaire passed on November 30.

Why is the FSA asking questions?
Hargreaves Lansdown head of pensions research Tom McPhail says the regulator has harboured concerns about the potential for drawdown misadvice for years. However the Government’s decision to effectively scrap compulsory annuitisation from April 2011 prompted this more formal regulatory interest.

What next?
Advisers who have completed the questionnaire say the FSA has given few clues about any specific areas of concern. The regulator says the exercise was designed to “monitor trends”, so the information it has received will likely determine where it focuses in the future.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Non-advised drawdown? Surely that should be the first subject for any drawdown review…

  2. Shame non of this was considered when they changed the rules instead of waiting until the public had started taking the advice. Why can`t the FSA, the Government and HMRC talk to one another prior to doing anything, is it too complicated for them?

  3. “Get your annuity now” lowest rates ever, come on Joe Public spend your hard saved cash and provide us with another Class Action feast for the legal fratenity. Regulation? What regulation!

  4. Next GAD review 8th March. Oh joy!

  5. I suppose this is the next excuse. We were too busy asking advisers about DrawDowns while the institutions were manipulating LIBOR so we missed it. Sorry.
    The whole process is becoming Big Brotherish – no, has become Big Brotherish. Most DrawDowns are going to be in the £100k+ bracket, which means that their owners must have some degree of savvy. Are these owners too lazy to pick up a phone and speak to their broker (in many cases, yes). If they are then they deserve everything they get.
    Caveat Emptor has gone out of the window so that there is always work for the working regulator to do. Paranoia may be good for the regulator’s purse, but there is little evidence that it is good for the consumer.
    If there are areas of concern should the trigger not be coming from FOS, not merely from cases taken to completion, but from every phone call they receive. This is likely to be a more cost effective control mechanism.

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