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Drawdown alert for advisers

IFAs advising on income draw down risk reducing client income by over 50 per cent, says Rowanmoor Pensions.

The firm, formerly the small self-administered scheme business of James Hay Pension Trustees, warns that advisers should consider sustainability of clients’ income in retirement when recommending income drawdown.

It says the longer a retired person lives, the greater the erosion of capital and the greater the likelihood that income will have to reduce.

Rowanmoor says advisers recommending income drawdown may be hit by misselling complaints if they fail to ensure that clients have a sustainable level of income in retirement.

The warnings come a week after the FSA publicly censured adviser GD Tancred Financial Services for failing to explain and document the risks of income withdrawal to customers with pension pots of less than £100,000.

Rowanmoor director David Seaton says: “Some people are suggesting that income drawdown is the next misselling scandal.

“Most people want to take too much income from their pension scheme in the early days, causing problems in the future. It is essential that advisers ensure that their clients have a sustainable level of income for a full retirement.

“What this research shows is that taking a scheme pension, which is paid by the administrator directly from the fund, avoids the risk of income plummeting at age 75 and if ASP is withdrawn by the Government, scheme pensions will be the only alternative to buying an annuity.”

Facts and Figures Financial Planners managing director Simon Webster says: “Income drawdown is not for the fainthearted or the risk-averse. Advisers need to make sure they monitor the performance of the investments closely. I have one client that has complained because their income has reduced dramatically due to poor stockmarket performance between 2000 and 2003. We were okay because we clearly documented the risks.”

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