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FSA probes bias on drawdown business

The FSA is to conduct a review of income-drawdown business, looking at the possibility of commission bias and whether drawdown should become a permitted activity.

In a report on the impact of the ageing population, Financing the Future: Mind the Gap, the FSA drops bombshell accusations of commission bias in drawdown sales and sets out plans to “review a number of key firms in this market to test the extent of commission bias and take remedial measures if appropriate”.

The sweeping report is critical of the Government&#39s state pension benefit system and further product-standardisation proposals.

It accuses insurers of mispricing and misselling annuities in the face of increasing longevity as well as announcing plans for interactive fact-finds and decision trees.

The income-drawdown sector is known to have been on the FSA&#39s hit list for some time. Money Marketing revealed in February last year that the FSA was covertly gathering information from IFAs about their drawdown business.

The FSA claims advisers may lack detailed knowledge and expertise to operate in the drawdown market. It plans to consult by September on changing training requirements and specialist exams for drawdown. It will also look at product provider disclosure practices.

Specialist IFAs welcome the proposals, believing it is necessary to tighten up regulation in such a high-risk area as drawdown. They say many firms already treat drawdown as a permitted activity.

The report was compiled through contributions from across many FSA divisions and was led by FSA director of major financial groups division Oliver Page.

FSA spokeswoman Jackie Blyth says: “An annuity carries up to 1.5 per cent commission whereas drawdown can bring in up to 6 per cent. Clearly, human nature can come in to play.”

Intelligent Pensions director Steve Patterson says: “Drawdown is not a product in itself, it is an advice service during the deferral of a product purchase. I think it is essential that this becomes a permitted activity. The FSA should have done this years ago.”

Report details, p3

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