Money Marketing revealed in October that Sipp and Ssas provider Talbot & Muir was allowing clients to withdraw 25 per cent of their pension fund each year in addition to the maximum allowed by the Government Actuary’s Department, even though exceeding this limit results in a 55 per cent tax charge.
The move prompted a barrage of criticism, most notably from Hornbuckle Mitchell, which claimed the firm was breaching HM Revenue & Customs rules.
Speaking to Money Marketing, FSA conduct policy division manager for pensions Milton Cartright urged firms to take “great care” when selling accelerated drawdown products, adding that the FSA may launch an investigation into the area.
He said: “Income withdrawal is a complex area that carries significant risks for consumers and is only suitable for certain people.
“Accelerated drawdown is in our view inherently more risky because it results in a product designed to run down a pension fund.
“For most people their pension fund is a very important asset and it needs to provide an income for rest of their life.
“It is very unlikely that this product would ever be suitable for very many people indeed it is difficult to see who it would be suitable for except in some very extreme and unlikely scenarios.
“Great care needs to be taken firms selling this product. We will look at this if it appears that these products are being marketed, sold or used inappropriately.”
He added: “A firm offering this type of product would need to consider their treating customers fairly responsibilities very carefully and that includes defining the target market for the product and monitoring that the product is not being used inappropriately.”
Hornbuckle Mitchell director Mary Stewart says: “I am not at all surprised that the FSA has expressed this view. Talbot & Muir’s relaxed attitude to unauthorised payments is clearly against the spirit of the legislation and invites pension-busting.
“The FSA was obviously going to have something to say about it. The risk is that this sort of approach brings the whole industry into disrepute such that everyone loses.”
Talbot & Muir director Nathan Bridgeman says: “What we are doing is within HMRC rules and HMRC has actually confirmed to us in writing that as long as we collect the tax correctly what we are doing is fine.
“This is not something we are marketing, it is simply a facility that will suit certain types of clients and it is always on a case by case basis and only after independent financial advice has been sought that we would look at these cases.
“If it helps someone to save tax ie. they are going to pay 55 per cent tax rather than 82 per cent tax on death post-age 75 then surely that has to be treating the customer fairly. You could argue that it is not TCF if you do not point out that it is available.”