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Providers raise fears over non-advised drawdown

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”.

Adviser view

Blair Cann M Thurlow & Co

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.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Non advised small pot drawdown will go ahead as a lot of advisers will not be able to afford to give advice for a small fee. It is not economic as the client will not pay the going rate

  2. Very worrying. I don’t know about you but every time I get a client with a DIY portfolio I’m usually horrified at some of the decisions and risks these people have taken. The financial press are the biggest campaigners for DIY investing, and usually couple that with articles slamming thieving IFAs. Reporters offering financial advice is almost as bad as the DIYers. Isn’t it about time, now that advice is fee based and advisers are well qualified, that the press and politicians actually started promoting independent financial advice?

  3. Non advised small pots aren’t the issue as triviality was small pots and I was all for an increase in the triviality limit. Non advised medium sized pots is going to be a bit of a mess, i.e. someone with say between about £50k and £200k who things they know what they are doing, but don’t.

  4. I am sorry but If providers are really that worried then they should ALL say Sorry but unless you are advised to take a draw down we cannot help you. The reality is that if they have D2C drawdown the providers will love it as there will be no come back on them and they will rightly say “sorry this was your decision, you took no advice so you have no comeback. Go away”.

    I have absolutely no sympathy for DIYers who have got, or will get it wrong – either slightly or catastrophically. Hell slap it up them in my opinion.

  5. All great comments above.

    What we do need is a device to help these people who want to do drawdown with a medium pot with a self monitoring tool to remind them that their pots are not going to last beyond age XX, at best guess, and that they should take advice if they can afford it.
    Because an adviser monitored £50K pot will be simply unaffordable (or unjustifiable). I agree that drawdown will be unsuitable for the mast majority of retirers with this sort of pot, but if the Government gives the impression that that’s the way forward, the adviser community should at least have a chance to dissuade people where appropriate or, if they insist, set up a reasonable safe and productive investment that will report back regularly automatically, eg

    “You decided to draw down £XXX from your pension pot in the expectation that this would provide you with income until age NN. Performance of your investment over the past year has been such that your fund is now more likely to run out n years earlier/later. Remember that all age projections are an average for the whole population, and only a small percentage of people actually die at that age! If you need any help or advice, get in touch with a financial adviser.”

    Or something like that!

  6. If DrawDown without advice becomes the norm, the risk will be a big increase in the number of people running out of money in retirement. In the US, the percentage is apparently 35.

    Understandably, providers may be reluctant to turn away customers wanting to do Income DrawDown without advice, as this may result in such people going to a competitor who doesn’t operate a similar policy. Then again, the regulator could address this by requiring all providers to warn in the strongest terms anyone approaching them to do IDD without advice that it’s a complex and risky type of business on which they ought to seek advice. Those who ignore such a warning and go ahead anyway will have to accept that, if it all goes wrong and they run out of money, they’ll have no one to blame but themselves. Caveat emptor.

    Given that it’s very much in the interests of its members for all retirees to take advice, one wonders what, if any, representations APFA’s making on our behalf, instead of just bleating about our share of the levy.

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