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Intelligent Pensions warns FSA to keep a close eye on third way

Intelligent Pensions has warned the Financial Services Authority needs to keep a close eye on how third way products are being recommended.

The drawdown specialist says it believes the costs of the guarantees on these products, also known as variable annuities, are not fully understood by many.

Intelligent Pensions managing director Steve Patterson says: “Typically, the cost of this ‘insurance’ is around 0.75 per cent to 1 per cent of the fund per annum, which doesn’t sound a lot, but over a 15 year period the remaining drawdown fund could be as much as 15 to 20 per cent lower, with a direct knock- on effect to the lifetime annuity thereafter.

“I suspect that prospective investors may not fully appreciate the long term impact when the benefits are being explained to them, and hope that the Financial Services Authority keeps a close track on how these plans are being recommended.”

He adds: “Third way products definitely have their place – and we will recommend them where appropriate – but the product providers in this space will be the first to agree they are certainly not a cure-all for the at retirement market.”

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