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Aviva: Drawdown ‘unlikely to be appropriate’ for pots below £30K

Aviva says drawdown is “unlikely to be appropriate” for savers with pension pots worth less than £30,000, echoing similar remarks made by the FCA.

In its written evidence to the Work and Pensions select committee, published this week, the insurer said guidance should be able to direct people away from drawdown for pots under £30,000. However, it says this would currently constitute advice.

Last week, FCA head of investment David Geale said drawdown was not likely to be suitable for pots under £50,000.

Experts hit out at the remarks, claiming the FCA is “clueless” and arguing suitability should not be defined by pot size.

But Aviva has questioned whether it is appropriate for individuals to use pots under £30,000 for drawdown despite new freedoms announced in this year’s Budget.

In its submission the firm states: “If the customer has under £30,000 of retirement savings, drawdown is unlikely to be appropriate, yet currently the non-advised guidance would state that highlighting this was classed as advice.”

In its submission to the committee, Which? called for drawdown to convert from being niche to being mass market with low charges.

Aviva head of policy John Lawson says ithe firm’s current drawdown limit is £30,000 but it has not set its level for next April yet. 

He says: “On the £30,000 point, the actual threshold will depend on the needs and circumstances of the individual.

“For example, drawdown for someone with no other pensions (or state pension), a £100,000 fund and a £5,000 annual fixed expenditure need may not be appropriate; an annuity is more likely to give them the security of income they need.

“On the other hand, drawdown for someone with a DB pension of £5,000, a state pension of £7,500 and an annual expenditure need of £10,000 may be perfectly suitable even if their pension pot is only £20,000.

“So, it really depends on the individual saver but in general terms, the more pension savings you have, the more likely it is that drawdown will be an suitable choice.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. So guidance becomes advice, advice is regulated, but the guidance is being provided by unregulated channels – what hope have the public got of understanding all this when the people that govern the industry seem to be cocking it all up?
    Has this seriously been thought through by the powers that be – No it hasn’t!
    Give us strength!
    Please let the public know that they need advice, nit unregulated guidance that could completely mislead them!

  2. Sorry there should not be any limit.

    So a client with £12,000 pension wishes to take funds at £1,000 pa on top of the state pension to remain a nil rate tax payer, why can they not arrange this. Instead they will be forced to take the funds, pay income tax and then if its a 11 year investment pay to arrange an NISA.

    Its sad but there are thousands of people out there with nothing more then a very small pension and the state pension. Why would they take an annuity with a pot so small? The income is not going to make a massive difference at the start, leave alone in 15 years time.

  3. Good old Aviva employee with a final salary pension,
    Good old FCA employee with a final salary pension.
    Both have missed the point in recent days that the new rules mean flexibility for all, even those with small pots, as per Mr Evans earlier,who just might want to be able to pick and choose when they take cash or potentially taxable income themselves rather than be told how much and when.
    Triviality and new small pot rules are not necessarily the most tax-efficient ways to go.

    Annuities certainly still have their place but it is just wrong to pick an arbitrary figure out of the sky and say that is the level under which drawdown should not be permitted.
    This government may, like all governments, have often been out of touch with the wishes of the common man/ woman and it may be bringing in the changed flexible drawdown for all for the wrong reasons (potential immediate income tax revenue after 5th April next year) but it has accidentally made pensions more interesting, more flexible and even simpler than it has ever been.

    If only people at Aviva and FCA could look beyond what they consider is best for all those not in final salary pension schemes but that requires imagination.

  4. Surely there’s a big difference between making a general statement about whether draw-down is likely to be appropriate for customers with retirement savings of less than £30k and giving guidance to a specific individual that draw-down product are unlikely to be appropriate in specific circumstances.

  5. Again leaving aside whether the reforms are sensible and beneficial in the long term, why £30,000?

    Why any limit?

    More likely, it’s unlikely to be appropriate (for which read profitable) for Aviva.

    If an ISA pot of less that £30K is OK, why not a Pension pot of the same value?

    The appropriateness or otherwise has to be down to a judgement based on client needs and circumstances. Whether it’s profitable for me as an IFA to deal with it is something that I have to address, but that’s another argument.

    Arrant nonsense, repeating yesterday’s mantras, and ignoring the new realities

  6. Under £30k, if you are only a basic rate taxpayer and £30k in one year doesn’t push you in to HRT, then neither an annuity via a CPA, nor drawdown appears appropriate even NOW as triviality means you can take it all out probably with 20% tax (£24k) and avoid the 55% tax charge on death. If an annuity style income is needed, then a secure lifetime income can be arranged with products of that name, which give secure income for life BUT access to the capital sum if needed for something sooner and being life policy based, although not the reason for doing it, as with the annuity and drawdown and unlike a NISA, should be outside the calculation for care too…..

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