Pension providers are voicing concerns about the consequences of people entering into drawdown contracts without taking financial advice following the Budget.
New freedoms announced by Chancellor George Osborne in March are expected to result in thousands more people entering into drawdown contracts from next April, including those who previously would have bought an annuity or not had big enough pots to qualify.
Last week Money Marketing revealed that Old Mutual Wealth is considering launching a direct-to-consumer proposition, joining a growing number of insurers that plan to offer non-advised solutions to remain competitive post-Budget.
But providers remain worried that solutions that sidestep advisers could leave savers unprotected.
Old Mutual Wealth retirement planning manager Adrian Walker questions whether drawdown can ever really be simplified.
“It’s got to be very carefully done, somebody could have quite a small pension pot but significant other assets,” he says. “As a provider, we’ll only see the pension part of a client’s jigsaw. If we try to filter using a relatively simple set of questions for a consumer that doesn’t take into account the full extent of the planning, there may be some wrong outcomes in one form or another.”
Royal London is yet to confirm whether it will offer a non-advised drawdown, but head of corporate affairs Gareth Evans admits “there is a competitive situation”.
He says: “Our position up to now is that customers certainly need to have an adviser. That feels like the right place to be but there will be demand from people who don’t want to deal with advisers and who want to stay invested and draw a periodic income.”
Evans warns that “at the moment, people who draw down their money too quickly won’t have a case if they complain someone should have stopped them”.
He says there is a chance it might become mandatory for people to take advice before going into drawdown or taking their pensions as cash. “However, I don’t know if there’s capacity in the adviser market for that,” Evans adds.
EValue Investment Solutions strategy director Bruce Moss agrees there could be an adviser “capacity crunch” over drawdown.
He says: “Drawdown has been quite a technical area and is different to other areas of financial planning because it is ongoing. As an adviser, you need to be G60 qualified and there are few people who have reached those lofty heights because it’s quite a niche area.
“Drawdown is going to become much more a mass-market product and there are few advisers who have that experience.”
Hargreaves Lansdown already offers non-advised drawdown. Head of pensions research Tom McPhail says the firm is “very comfortable” with direct-to-consumer drawdown.
He adds: “You have to warn customers, to protect them and us, and we do push back sometimes”.
McPhail says that if insurers do not offer D2C drawdown they will be “dead in the water”.
Blair Cann, Senior partner, M Thurlow & Co
A client rushing into drawdown without an adviser is like someone representing themselves in court. Non-advised drawdown is not a development that I would welcome. If you don’t take advice, the clients may well think drawdown’s a great idea when an adviser might think an annuity is more appropriate after looking at the client’s risk profile.