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FCA raises non-advised drawdown concerns

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The FCA says it will consider “stepping in to break the link” between providers and retirement decisions if there is evidence consumers are not shopping around for drawdown products.

Speaking at the Westminster Employment Forum in London last week, FCA director of competition Mary Starks said: “We’re very conscious that if we see a significant increase in  people not moving around in retirement, and in buying drawdown from existing providers we will have to look very hard at how we can make comparisons easier and step in to break the link between the provider and the retirement phase by prompting a shopping around point.”

She was responding to a question on whether the problems experienced by those who did not shop around for the best value annuities were being replicated with drawdown products post-pension freedoms.

In September, Money Marketing revealed the extent of the boom in non-advised drawdown sales since the freedoms took effect in April.

Standard Life said the product was its “fastest-selling solution ever” while Scottish Widows recorded 4,000 direct drawdown sales.

Starks said: “It is certainly an area of concern. It is simply less easy to compare drawdown products, with an annuity you can use a price comparison site to compare rates.

She added the regulator would consider mandating a compulsory open market purchase.

She said: “One of the options on the table a couple of years ago in reference to the annuities market was looking at the Chilean model where people are forced to go to the open market rather than just given the option.

“Once we see what’s happening in the market we’ll have to keep those options in mind.”

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Comments

There are 11 comments at the moment, we would lover to hear your opinion too.

  1. Please close the stable door before the horse bolts….oops too late..as usual

  2. And the FCA have only just woken up to this , priceless !!!

  3. For how many years has the FCA been steadfastly ignoring calls for OM to be the default option? Yet now they’re hinting that they might mandate exactly this, as if it’s their idea.

    And how can non-advised DrawDown possibly be anything other than highly dangerous? It’s risky enough on an advised basis. We KNOW that far too many people, now freed from the shackles of annuity rates, see Income DrawDown as an easy route to extracting a quart from a pint pot. But it just can’t be done, can it?

    So what has nearly 30 years of regulation achieved? A continuing succession of train wrecks and motorway pile-ups. People still being scammed and ripped off by people flogging non-existent or at best extremely flaky investment schemes. The industrial-scale mis-selling of products such as MPPI. PP policyholders still commonly failing to shop around as retirement approaches. Funds and providers going down with severe investor losses because the FSA/FCA was looking in the wrong direction. Advisers being bled white by extortionate FSCS levies. The stock market rocked by bungled press releases over planned reviews. God, the list just goes on and on.

  4. OK, so let me get this right… first there is criticism that it is too difficult for members to access their pension funds through drawdown so providers are making it easier for members by putting in place a non-advised drawdown facility – now the criticism is that its too easy for them to go into drawdown and they should really look at the whole market before making a decision….

    I’m feeling dizzy……. I know that the best option is to get advice and look at the whole market but the reality is that the size of funds is too low in many cases for members to feel like they’re getting value for money. All some of these people want is to access their funds tax efficiently so for these smaller pots a non-advised ‘in-house’ facility is going to prove really useful – come on FCA, please either give us some definitive rules or let us get on with it?

    • @Sue, I know what you mean. At one point the FSA drawdown booklets said that drawdown/income withdrawal was unlikely to be suitable for consumers with pots under £50k and it then moved to £100k. Consumers now have complete freedom (as they should), but freedom comes with responsibilities and risk.

  5. What on earth are they doing now? What they are actually saying is that they intend to regulate the public now as well as the industry. This is ludicrous – Trying to regulate those who had decided not to take advice, this will all end in a heap on the floor. They are going to force people that hardly understand the product shop around to see if they can get a better deal by moving the pension? Ha, I cannot wait for the fallout from this one to start.

  6. FCA – one of the things you should look at is the meaningless illustrations which, under your rules, providers must issue for Drawdown cases.

  7. ‘If there is evidence consumers are not shopping around’ …. are they serious? It is common knowledge with the large pension providers that most consumers to date are releasing tax free cash and then leaving the remaining funds invested. Shopping around is non existent. I have been to three seminars where the figures are shocking. Two very large pension providers have told me their data follows that same pattern. To few consumers are shopping around because (a) they are scared of the costs of advice,(b) ignorance, (c) horror stories in the media and (d) the complexity (especially the illustrations and literature) is baffling.

    That in itself however does not concern me as that is personal choice to release TFC. What does is the remaining funds. Given the average consumers knowledge of personal finance issues where have these funds been invested? One certainty is incorrectly.

    • Great post Greg, our regulator doesn’t know what it’s doing , if I wanted to review non advised drawdown I would have been knocking on standard life door earlier this year when they said ‘it was their fasting selling product’

  8. I agree with Jim, Geg and Alf!

  9. I like politicians.

    They want people to chose to do something.

    If they chose not to do so, they make it compulsory.

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