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Keeping up on drawdown

Regulatory changes could soon be in line for income drawdown which makes heavy demands on the expertise of IFAs, requiring knowledge of tax and investment strategy as well as retirement products.

The FSA allows IFAs to advise on drawdown as long as they have FPC3. But other complex areas of advice such as pension transfers are defined as permitted activities and advisers must have G60.

The regulator has been monitoring drawdown and is collating the findings of its visits last year to firms selling and advising on drawdown.

Its conclusions will be published shortly. The FSA is also undertaking a fundamental review of exams and qualifications as part of its consolidation of functions for N2.

The question of retirement options is also being examined by politicians and the courts. Recent comments by pensions minister Ian McCar-tney&#39s suggest the Govern-ment remains unwilling to review annuities. In the legal sector, opinion is divided on the chances of success of the court challenge on compulsory annuity purchase brought by Joe Singer.

The product providers, in response have sought to innovate within the product, with flexible annuity offerings from Canada Life, London & Colonial and Prudential.

Syndaxi director Robert Reid says the complexity of these new annuities put them on a comparable level of difficulty to income drawdown. He would be opposed to drawdown becoming a permitted activity although he thinks retirement options as a whole will become subject to more stringent regulatory requirements.

Others in the industry agree, saying to single out drawdown would be illogical, and could lead to advisers suggesting inappropriate products.

Scottish Equitable IFA training manager Peter Will-iams says it is important ret-irement options are approached holistically and no change to the regime should jeopardise this.

Williams says drawdown is simplistically described as suitable for people with a certain retirement pot. He says if someone has £500,000, drawdown could be unsuitable if they have no other financial provision, yet if they have only £50,000 it could be suitable, given other arrangements that could be in place.

Higher levels of qualifications are thought to be the likely response for advising on drawdown.

Williams, who is CII vice-president, describes exams as a snapshot in time. The FPC, he points out, is now 10 years old and things have moved on, both in terms of advisers&#39 and consumers&#39 knowledge. He thinks even the G60 might no longer be sufficient, especially in view of the new K10 Retirement Options exam.

He suggests the industry should welcome requirements for higher qualifications. “After all, it is a better approach than the FSA reviewing past bad practices. IFAs should then want to raise their standards as they have done before.”

The CII says there has been a strong interest in K10, which is a half-credit for the AFPC. At the first sitting in April, 693 advisers took the exam. The pass rate was lower than usual at 38 per cent compared with the AFPC average of 42 per cent. The next exam is in Oct-ober and 946 people have registered, which CII PR manager Steve Radford describes as “extremely encouraging”.


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