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FCA expresses concerns over FSCS drawdown treatment

Board minutes released by the FCA have shed further light on the regulator’s approach to reforming the Financial Services Compensation Scheme.

Notes from an October meeting reveal that the regulator is working with the lifeboat fund to produce “a more comprehensible document explaining the cover provided” when consumers are given bad advice or investment companies fail.

The FCA expressed specific concerns that drawdown compensation was treated differently from annuities, an issue that it says has been exacerbated by the pension freedoms. As insurance-based products, consumers are compensated for 100 per cent of losses of annuities, but drawdown cover is capped at £50,000.

The minutes read: “The Board expressed the view that messaging was very important as consumers needed to understand the difference between risk bearing and guaranteed products and that there would be an increased cost for the latter. It was queried what information consumers were being given at the point of sale and whether it was clear that changes could occur over the lifetime of the product.”

The FCA’s final proposals for changing FSCS funding were released the following month, and included increasing drawdown compensation limits to better harmonise them with protection for other areas.

The board minutes note: “The importance of making information available for consumers in a clear and succinct format was stressed and it was noted that the harmonisation of limits would simplify issues.”

The consultation also included plans for providers to contribute 25 per cent of advisers’ FSCS bills.

The board minutes show the FCA believes this will also “incentivise them to create products which are better understood and benefit consumers more.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. It is unfortunate but we live in an age where no-one seems to be encouraged to take responsibility for their own actions. If people want a secure income to meet their needs, then buy an annuity which gives peace of mind.

    If getting ‘best value’ translated as having your cake and eating it, conveniently ignoring the tax perks enjoyed along the way then go down the drawdown route but don’t look to blame someone else and be compensated when it doesn’t quite work out.

    I’m not by the way an advocate of either solution per se but it drives me mad when ill informed jingoism leads to a ‘someone must be to blame’ culture which means I have to get my cheque book out again to pay for the FSCS.

  2. Worth clarifying that the compensation limit for drawdown provided by insurance companies as long-term insurance products are covered up to 100%. It is other drawdown products (for example platform-based) that would currently be capped at £50,000

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