Should FCA toughen up on non-advised drawdown?

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The FCA is being urged to introduce a warning system for savers in non-advised drawdown amid concerns their pots could be eroded away as stock markets plummet.

Drawdown sales have rocketed in the wake of the pension freedoms, with thousands of customers exposed to stock market risk in retirement without speaking to an adviser.

At the same time share prices have tanked, with the FTSE 100 down from over 7,000 in April 2015 – the month the freedoms were introduced – to around 5,700 today.

Just Retirement director of external affairs Steve Lowe says the regulator needs to consider introducing protections for savers entering non-advised drawdown.

He says: “Drawdown is becoming almost the default in the non-advised space, and these customers are getting no reviews.

“The theme that ran through [FCA consultation] CP15/30 was ‘we are very concerned about sustainability’. So should you ever allow a drawdown product to be sold when you are exposing customers to that kind of risk, unless there are some kind of instituted reviews?

“That might be a review a provider has to do by giving customers an alert every time their fund moves by a certain proportion, or a questionnaire that is sent out to determine whether it is still suitable for their needs.

“The FCA are alert to this but they need to accelerate their work, because customers are exposed materially to this risk.”

Standard Life has introduced a default non-advised drawdown solution based around splitting funds into three pots containing different risk assets. In September last year the provider revealed direct drawdown had become its “fastest-selling solution ever”.

Standard Life head of pensions strategy Jamie Jenkins says: “I’m in favour of ensuring customers are communicated to about these sorts of things but I think it would be a mistake to legislate immediately. There is nothing stopping providers from doing this today.

“Providers can innovate around this and then the FCA can scrutinise those communications and legislate if they decide it is necessary.”

Just Retirement is also calling on advisers to ensure they have a process in place to review drawdown clients’ income needs.

Previously advisers had to review this regularly under capped drawdown rules.  However, this requirement disappeared following the introduction of the pension freedoms in April last year.

The FCA declined to comment.