The FCA says income drawdown is “unlikely to be suitable” for pension pots under £50,000.
Speaking at the Taxation of Pensions Bill committee hearing this week, FCA head of investment David Geale said currently drawdown risks and charges made it poor value for money for pots under £50,000.
The FCA says it is not planning to set rules around drawdown limits and argues it is for advisers and providers to determine the suitability of products for customers.
The FCA says most providers offer drawdown for pots above £100,000 but they are free to set their own levels.
Standard Life changed its drawdown rules after the Budget and is now offering it to anyone with more than £30,000 in their pension pot.
In Parliament, Labour MP Pat Glass said: “Is there a level of pension savings below which flexi-access drawdown products are unsuitable because of the increased charges and the investment risks?”
Geale said: “We previously said that for customers with under £50,000 in their pot it was unlikely to be suitable to access drawdown under the current product range.”
When asked if that meant there are unsuitable levels, Geale replied: “Yes, under the present range of products. But there is no reason why over time flexible access products need to be poor value for money or to represent a high element of risk: it is about people understanding what they are getting into.
“We will have to see how the market develops to answer that question fully. As I say, under the current regime there is a limit to how much people should have before they go into those products.
“Over time we will see how the market develops. Equally with the new freedoms, like the ability to access the uncrystallised lump sum and because of those different things that are available and the different ways people can access their money, you would expect to see competition take effect in that market as well. So we might hope to see charges come down over time.”
In the same session the Financial Services Consumer Panel raised the alarm about non-advised drawdown sales, claiming it would leave customers without a route to redress.