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FSA adds drawdown to Omo requirement

The FSA has extended open market option requirements to cover income-drawdown providers, prompting the industry to suggest that the regulator forgot to include phased retirement products in its original plans.

Providers will have to inform clients of the Omo twice, once before entering drawdown on retirement and again when they buy an annuity.

Companies warn that as many drawdown investors phase switching to an annuity, the new rules could mean they will have to advise investors about the Omo up to half a dozen times.

The proposal is included in CP141, Miscellaneous Amendments to the Handbook (No 3) published in July, which deals primarily with changes such as grammatical or technical errors in the handbook.

The Omo regulations come into force on September 1 but the consultation for the extension does not end until September 22 so it is likely it will be introduced for drawdown products at a later date. In its original consultation in April, the FSA estimated the Omo would cost the industry £227,000 a year. It now says the extension will cost £12,000 a year, meaning the total price tag has reached £239,000.

FSA spokeswoman Louise Buckley says: “The whole point of a cost-benefit analysis and consultation period is to see what the industry says. In terms of the Omo, we are just bringing it into line with the requirements on other pensions products.”

Clerical Medical pensions strategy manager Nigel Stammers says: “It is rather a surprise, coming as it does after the consultation period. Providers who did not anticipate the requirement being extended to income drawdown products could have a lot of work on their hands, rather more than £12,000.”

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