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Tug of war: FCA clashes with Treasury over sub-£50K drawdown concerns

The FCA has clashed with the Treasury over new pension freedoms after the regulator highlighted the risk of drawdown for those with pension pots worth less than £50,000.
From next April, anyone aged 55 or over will have access to their ­entire pension pot, potentially bringing drawdown to the mass market.

The Treasury has been loudly ­promoting the new freedoms as making pensions like a bank account and handing savers total flexibility over how they spend their pot.

But speaking at the Taxation of ­Pensions Bill committee hearings last week, FCA head of investment David Geale said drawdown is “unlikely to be suitable” for pots under £50,000. He later suggested the regulator’s stance could evolve over time.

In parliament, Geale said: “We ­previously said that for customers with under £50,000 in their pot, it was unlikely to be suitable to access drawdown under the current product range.”

When asked if that meant there are unsuitable levels, Geale replied: “Yes, under the present range of products. But there is no reason why, over time, flexible access products need to be poor value for money or to represent a high element of risk. It is about ­people understanding what they are getting into.

“We will have to see how the ­market develops to answer that ­question fully. Under the current regime, there is a limit to how much people should have before they go into those products.”

While the FCA insists it has no intention of imposing rules around minimum pots for drawdown, the seeming mismatch between reg­ulation and Government policy goes to the heart of the bombshell pension freedoms announced in the Budget.


Industry experts have expressed concern over the mixed messages and questioned whether the “clueless” FCA is ready to deal with new pension freedoms.

A senior source at a major insurer says: “It was a stupid comment [from Geale]. This idea that there should be an arbitrary limit of £50,000 or whatever is just ridiculous. It suggests the FCA doesn’t know what it is talking about.

“The regulator is not with the script and is living in a past time. It does not have a clue about where the world is moving to. It is always the same with the FCA – it is always a million miles behind the track and it is behind again. It is just clueless.

“I don’t think it is prepared for these changes – it has been caught off-guard. It is still off-guard and under-prepared.”

MGM Advantage pensions tech­nical director Andrew Tully says there is a mismatch between consumer expectations and the FCA’s ­approach to drawdown.

He says: “We have the Government saying one thing and the regulator saying something different. The Government says anyone can have drawdown and the regulator doesn’t quite agree.

“There is a difference in customer expectation from what will actually be delivered. Some customers who have £30,000 are expecting to go into drawdown, but they could go to an ­adviser who advises them not to go into that product because of what the  FCA has said.

“It’s a mismatch and similar to the situation around pensions being treated like bank accounts.”

Hargreaves Lansdown head of pensions research Tom McPhail says the regulator’s position must shift by next April.

He says: “The FCA default position historically has been that drawdown is risky and annuities are safe. Clearly we are having to evolve from that.

“We need to move away from the notion of drawdown suitability being defined by pot size. I am sympathetic to the FCA position but, with the new freedoms, it is not about pot size any more.”

It is not the first time the reg­ulator has raised concerns. In an unpublished 2012 thematic review into income drawdown advice, seen by Money Marketing through a Freedom of Information request, the FSA ­described drawdown as “inherently risky” where only a “high-risk strategy” could produce sustained levels of income.

It also expressed concerns over the “potential new risk” from abolishing compulsory annuitisation for the over-75s in 2010 – reforms that were far less radical than those coming into force next April.


Providers reject the FCA’s concerns and are rethinking their drawdown offerings dramatically, including ­facilitating drawdown for savers with pots below £50,000.

Since the Budget, Standard Life has offered drawdown on pots above £30,000 and denies they are “unlikely to be suitable”.

Standard Life head of pensions strategy Jamie Jenkins says: “We are moving drawdown to the mass market, which requires a scaling up of the process and an easing of the ­limits. Our limit is £30,000 – we amended that when they raised the trivial commutation limit in March.

“Beyond next April, all bets are off and we could do it for anyone. We don’t believe it is unsuitable as we have dropped our limits to £30,000.”
Legal & General is still selling drawdown as an advised product and is working on a facility to allow consumers to make a series of cash withdrawals over a number of years in order to reduce their tax burden.

L&G pensions strategy director Adrian Boulding says: “Post-April, we expect to see a lot of people who have historically bought an annuity wanting to do something quite different. In particular, it will be the group with some final salary pension. There are a lot of people with final salary pensions, probably from a previous employer. Those are the people who have ­secure income and they will want to do something different with the defined contribution pensions accrued in later years. It may be less than a £50,000 pot.

“We will be looking to open a suite of products to them. Some will take financial advice and some will just take the guidance. We will be relaxing our historic requirement that drawdown is only advised so we can access these new people.”

With the FCA focused on the guidance regime and its annuity market study, some fear it will not be ready to regulate the market from April 2015.

“The FCA does not seem to be on the ball for the wider advice that needs to be given around annuities versus drawdown and how those two interact, or even equity release and deferred state pension,” a senior industry source says.

“It fundamentally changes how you think about structuring your income but the FCA does not seem to be at the races at all about any of it.”

Expert view


With a flexi-access drawdown account you don’t need to limit what people take.

The reason people were told not to go into drawdown under £50,000 before was partly to do with high charges.

Under the capped drawdown system you needed ongoing advice but now, without the need for ongoing advice, the charges should come right down. 

I’m not sure what the difference will be between a pension pot and a building society account or an investment bond.

What the industry hasn’t got its head around yet is that this is a new world with real flexibilities.

Yes, it’s a pension but it doesn’t have the kind of restrictions that capped drawdown has.

If you are not doing anything complicated, such as a passive tracker and an income fund, then why should it cost a lot of money? Why should it cost any more than any other account you might have £5,000 or £10,000 in?

Drawdown could be used by people with other final salary pensions or those still working.

There could be more mixing of annuities and drawdown, such or buying an annuity later when you have a health issue.

Savers could only put some of their money into annuities so they can manage different types of risk in retirement.

Ros Altmann is an independent pensions consultant and the Government’s adviser on older workers

Adviser views


Martin Bamford, managing director, Informed Choice

There is a lack of joined up thinking on pension reform. It is wrong to place mandatory figures on suitability, it is about what is right for the customer. There are people for whom drawdown will be suitable. There are always circumstances where you look at other assets or risk profile, rather than just the sum of money involved.

Simon Webster, managing director, Facts and Figures

I totally disagree with the FCA. It is a complete no-brainer to take the cash rather than a small income, so it is being stupid. As ever, this is people in ivory towers making pronouncements about things they don’t understand.


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There are 37 comments at the moment, we would love to hear your opinion too.

  1. My suggestion below is NOT an ideal solution, but something along these lines could be worked up by a group of advisers as a sensible balance of consumer protection and freedoms.
    As with there being a default assumption on occupational pension schemes that transfer is inadvisable so reasons for have to be clearly articulated, a similar approach should apply to Drawdown post April 2015.
    1. any drawdown which is not taken as one lump should be advised as an annuity MAY have been more appropriate and there WILL be tax implications.
    2. any crystallisation of a whole pension fund below a set line, perhaps based on say 3 x the Lifetime allowance or based on the 40% tax threshold should NOT require sign off by a qualified adviser. That way people/with smaller pots can crystallise without the risk of significant amounts of 40% tax.

    As I say, this is NOT a fully thought through idea, but I am sure that by bouncing the idea around a pragmatic solution to achieve a balance of protection and freedom could be achieved. If that was made part of the guidance guarantee i.e. the TPA or CAB look at facts and tell consumer based on the information you have given me, you MUST obtain sign off by an adviser with 1 above OR with 2 above, we recommend you get advice still, it will cost you a minimum of £x to get advice compared to your fund value of £x as most people can then see whether the cost of advice almost definitely outweigh the value OR that it is proportionate to the fund size and the piece of mind of advice is of value and hence worth paying.

    Tell you what, put Martin, Ros and Simon Webster in a room for an hour and I bet between the three of them you could come up with a better solution than the Treasury, FCA or FSCP, that is despite the fact I disagree with Ros Altman on this one. Pensions really should NOT be treated as a bank account, there are serious longevity issues which despite anuutities being poor value, means they should be considered as part of a balanced income stream for a retiree.

  2. I have to say, I side with David Geale on this one, on the basis of the word “unlikely”

  3. @DH – Unlikely, but the FSA guidance in 2003 was £100k unlikely to be suitable, not 50k mention of an amount was dropped from later guides issued by the FSA and latterly by the MAS.
    Smaller pots are more suitable for complete vesting rather than drawdown and was why many advisers including me were calling for the triviality limit to be increased to 3 x the LTA or 50k whichever is the higher. The pension freedoms went further and what we now need is a pragmatic approach to smaller pots and advice and a recognition that advice should be mandatory for larger pots, say 50ok plus with a flat min fee if you choose to ignore it perhaps. and a requirement that instead of signing to confirm understanding the adviser interaction has to be recorded as an audio file to evidence of intent of both parties can be clear and uncontested later.

  4. Or maybe the problem with confirming that £50,000 or less is now OK to use in a drawdown option, is that the number of FCA/FOS rulings against advisers in the past for ‘so called inappropriate advice’ on small drawdown cases would lead to many successful appeals?…….oh but I forgot, this is the FCA and FOS we are talking about and retrospective issues are only brought into play if it creates a fine/punishment…not if it turns out to be unfair!!

  5. 1. The Triviality rule should have been raised to £50k anyway. What is the option of not taking the cash? After TFC the fund is a paltry £37,500. At current annuity rates that may pay a single life £1,900 p.a. – £36 per week might just mitigate benefits when the State Pension is included. The debate is a tad sterile.

    2. The main point is that it is about time the Government and the Treasury realised that they have created a Regulator to regulate and that their policy should be subordinate to the requirements of the Regulator. Otherwise why have a regulator at all if all the Regulator is doing is running behind clearing up their droppings? Hardly the way to do things I would have thought.

  6. @Many victims – Unfortunately advisers cannot appeal FOS decisions only consumers can, which is where thee is a flaw in the FOS system. A modest fee to the consumer of even £250 might make the difference with some smaller claims not even going to the FOS which could go either way.

    Just as many advisers will sometimes settle because the cost of arguing exceeds the monetary value of winning the consumer may choose not to argue if a modest charge is levied, thus reducing the burden on the FOS to handle cases which are not worth arguing over, other than on principle, which both parties should have equal arms or skin in the game.

    Personally I tend to argue I am afraid, even if it costs me as the FCA itself has found out when I have argued and won with them or settle as with the FSCS/Keydata debacle which wasn;t financially viable to argue too long over for either party.

  7. I predicted a car crash between the government and the FCA and here is the 1st one

    It is important to have a proper debate – its not about charges – its about matching peoples objectives to solutions

    If someone’s objectives is to run out of money drawdown is fine – if their objective is an income throughout retirement then drawdown is risky

    There are real concerns about the advice gap but I don’t see policy makers taking this seriously

  8. @Victims: Perhaps I am being too cynical for a Friday morning, but I think it more likely that confirming that £50,000 or less is OK for drawdown would be more likely to lead to complaints on behalf of people who were told to buy a pittance with their £50,000 instead of using it to fix the roof or replace the car and leave the surplus to grow.

    Hark, I can hear the CMC adverts being furiously typed as we speak. “Were you sold an annuity between 2009 and 2014? Did the adviser or salesman tell you that annuity rates were at an all time low? Does the tiny income from your annuity make no real difference in your life? Were you unaware that if you hadn’t bought an annuity your children could inherit your pension, whereas now the insurer will take all your money? Then you may be entitled to compensation…”

  9. There are people who have been missold annuities and the adviser will use the guidance from the FSA/FCA as defence. But when people get to know that they could have had a drawdown plan, and if they had a drawdown plan they would now be able to get access to the money, there’s going to be a lot of anger out there. So, it’s not about how much should be allowed for drawdown, it’s about righting a longstanding injustice, the injustice of not allowing people access to their own savings. What has been revealed by the new freedom is how unjust the old system was. It is a searchlight shining on the old system. The drawdown should be treated along similar lines to the way the lump sum drawdown of the deferred State pension is taxed.

  10. So two people in the same scheme reach age 60 but continue working. One simply defers taking any benefit and the pension fund goes on as before. The other draws his lump sum and the pension fund goes on as before. What is the extra “complexity” for the latter?

    My point is that it is not the drawdown concept itself that confers the complexity and risk, it is whether or not there is a reliance or expectation for it to provide income. And when it comes to income planning, advice will be key. If this is not recognised, a lot of people with smaller pension funds who simply want their tax-free lump sum but not immediate income, are going to be sucked into an unnecessarily overbearing process.

  11. New products with charges around the same as NISA’s is the most likely outcome. If this is the case, then as stated above no requirement for a review would mean the client would be better advised to remain in a pension investment if not taking an annuity.

    I’m not going to worry about it, if its right for the client I will arrange.

  12. As others have pointed out, Income DrawDown has now entered a completely new phase of evolution, not least with products from the likes of MetLife that lock in investment gains (a safety ratchet) and guarantee a base level of income. These are quite different from and far less risky than traditional, open-ended Income DrawDown, which provides neither.

    We also have temporary annuity products with the balance of the original fund remaining invested (Canada Life’s AGA), of which I’ve done a few, all of which have or are currently working out very well. Admittedly, there can be no guarantee that they might not, but a suitably low risk selection of funds makes them a pretty low risk proposition. Again, such a product is quite different from open-ended DrawDown.

    AND, in addition to those options, the risk posed by open-ended DrawDown is considerably reduced if the level of income required and drawn is less than the maximum allowable.

    To state baldly that no Income DrawDown is likely to be suitable for ANY fund of less than £50K, particularly without consideration of other sources of income seems, at best, to be ill-considered, a bit like Margaret Cole’s sweeping assertion that all life settlement products are toxic and illiquid, which created all sorts of problems that I many cases might not otherwise have arisen.

  13. Hey – you know what as I had previously to explain to the FSA when a client took his tax free cash pre-retirement age. It’s not their money it’s the client’s. I have already had clients with small pension pots approach me saying “what good is a £1,000 a year – I will take the cash”. Why have a small pension that could restrict your state benefits. I would do the same if the FCA allows me and all the others who saved the money in first place, to take decisions for ourselves. Once again the regulators knows best but the fact is they don’t.

  14. As with all government policy, it is important to look through the immediate pros and cons and to look at the long term issues, and perhaps more importantly who punters are going to blame if they make the wrong decisions.

    Many people will accelerate their drawdown. A surprising number will allocate part of their “life-changing” £50K to luxury spend (new car deposit, holiday), save a few grand in an ISA, hand over the rest to an idiot with an investment opportunity and before they know it, it will all be gone. Don’t believe me? Well a few weeks ago in an episode of Moneybox on equty release mortgages the two case studies more or less amounted to that. The program was trying to highlight, in a BBC way, that equity release was expensive and over time would consume all the household equity but ended up highlighting the extraordinary degree of stupidity that abounds amongst the populace.

    So, having done their wad in double quick time where does that leave, what would in past generations be middle class folk with some sort of retirement aspiration? Turning to equity release, funnily enough, which they will inevitably waste as well. And then they will be assetless, potless and entirely welfare dependent. Not what they will have dreampt of when they were younger. Some will accept their own culpability in the whole mismanagement, but increasingly many will be angry sand seek to shift the blame to anywhere else they can. Why didn’t X stop them from themselves?

    Who then will be X? Providers will cop some flak for sure in not restricting the cash outflow. But the FCA will also be absolutely vilified. They are the watchdog and they should be protecting people. Irrational it may be to expect a financial regulator to run people’s lives, but that is how more of the population are now thinking. So, to me it is hardly surprising that the FCA is sounding caution now.

  15. So an individual who has a pension pot of £40,000 and receiving an annuity rate of say 6.5% would receive an income of £2600 per annum gross on a level annuity.

    The first thing to know is that they would have to survive 15 years and 3 months before receiving the whole capital back.

    We should also not forget the effect of inflation as this £2600 is going to erode considerably over that 15 year period.

    I’m not saying that annuities are not an option is just that the individual needs to know the risks of an annuity and the lack of flexibility, just as they have to understand the investment risks of drawdown.

  16. Can almost imagine a new question on application forms for welfare benefits: “have you ever cashed in a pension fund which could have provided you with a regular income”?

  17. I think the FCA are taking undeserved criticism on this one. Geale was asked a direct question when giving evidence before a committee of MPs, to which he gave the best answer he could. It was not a full policy statement of intent by the regulator. Using exceptions to undermine his statement completely misses the point that he was making a generalisation with “unlikely” as a clear caveat.

    What was Geale supposed to say – drawdown is now a free for all and we’ve stopped caring about sustainability of income because everyone else has? Those criticising the regulator for not moving with the times completely ignore that a few years ago £100,000 was given as the benchmark, and that he did highlight that circumstances were important and that new products may be developed.

    During the hearing I thought that Geale handled himself well, and gave a clear and sensible explanation of the regulator’s stance. It would probably be a more productive use of people’s time to watch his comments in full rather than focus on one statement.

    Obviously there are cases where small-fund drawdown makes sense, and the FCA would not argue otherwise. The simple principle they are promoting is that if the customer is dependent on the plan for income, everything else being equal, the smaller the fund the less likely it is to be suitable.

    Their stance makes far more sense than what Ros Altmann is saying. According to Ros there is no need to review drawdown anymore (because checking GAD was obviously the only thing you would do in a drawdown review), and high charges were the main issue with drawdown. Not you know, longevity risk and investment risk, which will apparently no longer exist from April next year…

    The FCA have been dealt a proper hospital pass with the pension reforms, and are really in a no-win situation. If negative outcomes result, they will be criticised for not putting in place sufficient protection for consumers. If they attempt to restrict the potential damage, they are seen as being obstructive and out-of-touch.

    Increased flexibility is in principle a great thing. However, the way it has been presented by politicians and the media is encouraging people who don’t even know where their funds are currently invested to enter a complex and high-risk product where an awful lot can go wrong.

  18. “Under the capped drawdown system you needed ongoing advice but now, without the need for ongoing advice, the charges should come right down.” Quote from expert Ross Altmann.

    Really? So people don’ need advice as to whether they are taking out too much money or are invested in the wrong assets? Or the impact on benefits? Or the impact on tax?

    I would think that removal of GAD limits etc. has increased the need for advice.

  19. So, by all means recommend drawdown to clients with £50k or less, but if they develop a selective memory in the future then you are out on a limb, based upon the FCA’s apparent view of things (and thereby the FOS, if they are really singing off the same hymn sheet as suggested by Mr Percival).

    If by contrast, one utilises some form of annuity and this does not, with hindsight, provide the better outcome, then you would appear to be damned if you do, damned if you don’t. For ‘adviser’ see ‘scapegoat.’

  20. I agree with the FCA on this one (did not think that I would be saying that). They are not saying that drawdown will always be unsuitable under £50,000. You just have to make sure that it is suitable. Drawdown is exceedingly complicated and high risk if you want your income to last the rest of your life. None of the proposed changes to the pension rules has changed this. It wil always depend on the client’s situation and the other assets that they have.

    Taking no income or just taking the whole thing out is easy. It is the income for life that is a problem.

    For those advisers who advise on drawdown, I would suggest reading ‘Retirement Ruin and the Sequencing of Returns’ by Moshe A. Milevsky, Finance Professor at York University.

  21. @SteveD – One of the reasons why we started recording client meetings as MP3 sound files was because of the risk of being damned if you do and damned if you don’t. In doing so ironically the second person we recorded (a new client) was the first person to complain after we moved her £400k from Northern Rock bank to a low volatility portfolio which went down by under 5% when the banking crisis occurred. The solicitor who was handling the complaint dropped it like a hot potato after he’d put in writing claims which we then disproved on the recording and hence the complaint never even got as far as the FOS.
    I have just had an interesting telecom with Friends Life about a bugled complaint where they failed to correct something (after accepting the complaint and paying compensation to the four policyholders effected). they are now bugling the correction of the complaint and confusing data protection. I phoned them yesterday so they had to identify ME. They phoned me back today and when I ask them to identify themselves, they refuse to provide the same info I ask in return today, which I gave them yesterday. We are now at an impasse, they say I will have to call them back so I know I am calling them and for me to give them identification. You couldn’t make it up…. when we do to them what they do to us, they refuse to play ball…… well time to stop playing ball. What’s good for the goose is good for the gander. I think I need another coffee or something stronger…… or perhaps none at all in case it pushes up my blood pressure anymore!!!

  22. Important point to stress is that it is not for the FCA to “get with the program”, like some people are suggesting. Their remit is to protect customers (amongst other things), and they are politically independent (while still being accountable to parliament and the treasury).

    If they believe that mass market drawdown on “small” funds is a significant area of risk, they need to put in place regulation and controls to protect consumers. That is their job.

    While they probably need to take a more balanced and holistic approach to where drawdown can fit into retirement strategies, they equally should not be bullied into neglecting their duties by legislative changes with an overwhelming political motivation. The purpose of them being politically independent is that they do not just go with the grain when consumer detriment can potentially arise from electioneering.

  23. I agree with Peter Herd’s comments. The point is that in his hypothetical case there is no way of identifying the “best option” at the outset. My concern is that we and the regulators are overselling the benefits of adice. The public is being given the impression that it can take away the risk of making the wrong choice. All it can do is help the client make an informed decision and that decision can only be taken by the client. That is why I have always argued that the requirement that a recommendation has to be made should be reviewed.

    Moreover the focus of advice should not just be on the initial stage but on the execution of the client’s instructions. If the client decides to use drawdown, even if we think it is the wrong choice, our duty is to help them to get the best result.

  24. @John Traynor – I agree with you. Perhaps there should be an agreed scale for advised or advised against which the FCA and FOS could agree with;
    1. I really advise you to do this
    2. I advise you to do this.
    3. It doesn’t make an awful lot of difference either way, I’ve explained your options, which would you prefer and I’ll make sure we do the best we can for you based on the informed choice you are now making.
    4. I don’t think this is the best option, but I’ll do it if you insist
    5. I think your being silly doing this, but I’ll do it if you insist
    6. I think you are STUPID but I’ll do it if you insist
    7. You’re a complete plonker and I want nothing to do with this, find some idtiot who’ll do it for you if you want, but I am OUT..
    8. It is illegal

  25. You could have a client with £30k in a pension and £30k in an ISA, with both on a platform they could essentially be invested in the same funds. The FCA is happy for the client to drawdown from the ISA but not the pension.

    What is the effective difference?

  26. Andrew – there are no tax implications of drawing out money from the ISA, there are from the pension, but I get your point as we often find our advice is to draw up to basic rate on the pension with the balance from the IISA and then top up the ISA next tax year from the pension again at basic rate.

  27. Excellent point Andrew. A money purchase pension is really no more than a tax wrapper and is in fact a mirror image of an ISA. Perhaps the problem is the word “pension” Would it be better to re-brand all but final salary schemes as “Individual Retirement Savings Accounts” (IRSA)

  28. Please don’t overlook the fact that a pension – even money purchase – attracts tax relief on the contribution – which an ISA does not. True this is only borrowed money as tax has to be paid on exit. But the idea is to get people off benefits. If you blow the wad you presumably fall back in the State.

    Anyway if a basic rate taxpayer contributes to a pension it could be argued that he/she has been poorly advised. For small pots I reiterate – the Triviality limit should merely have been raised.

  29. @John T – I suppose so yes. I think is going to take a little while for us to get used to the pension freedoms, which probably went too far as I think the interim measures this year would probably have been sufficient a change, but we are here now unless nulibor gets in and reverses things.

  30. Yes I agree with the comments about tax, fair comment.

    However, the crude point that I am trying to make is that, for a client accessing £30k in a pension or ISA is looked at in the same way. It is just money in a long-term investment account. Yes there is a tax implication, but from a FCA regulatory standpoint, drawing money directly from a (sub-£50k) pension is bad but drawing money from a stocks and shares ISA is ok.

    The PI insurers take note of the FCA comments and this in turn influences advisory businesses about their advice. So the limits they state do matter.

    This is just money in differing tax environments (which is why advice is needed) but the FCA sees ‘pensions’ as a completely different animal to ISA’s or any other investment which is why they pose arbitary amounts to define good and bad practice. More clients want to see their whole capital wealth for use in retirement and not just ‘pensions’.

    Very good point about an ‘Individual Retirement Savings Account’, as ‘pension’ means both capital to some and income to others. Time for a debate about clearer, simpler definitions.

  31. I agree with your last post Andrew and John Trayners IRSA s a good start in changing perception, but keeping focus on it being for retirement. better copyright the name John!

  32. I really don’t get the problem with flexi flexi drawdown as surely those who have chosen to save all their lives should be rewarded with flexibility on withdrawing the money. I also don’t get the argument that tax relief on pensions is only lent due to the fact that when you do the sums there is a positive growth rate when you take into consideration tax-free cash even if the funds have not grown as demonstrated below:

    Example 1

    Basic rate taxpayer makes a £20,000 gross, £16,000 net payment into pensions from ISA

    Meaning that client receives £4000 of tax relief into pension, that client then withdraws funds from pension scheme using flexi flexi drawdown assuming they are a basic rate taxpayer for the whole withdrawal.

    £5000 tax-free cash plus £15,000 taxed at 20% e.g. £12,000 net + £5000 tax-free cash = £17,000. That equates to growth on funds without any investment risk, yes that does assume no adviser charges of i.e. Actual costs after high rate tax £12,000 return after tax £17,000 = £5,000 gain which is 6.25%

    Example 2

    High rate taxpayer making a £20,000 gross, £16,000 net of basic rate tax payment into pension from ISA

    Meaning the client receives £8000 of total tax relief e.g. £4000 within the pension and £4000 through tax return therefore total tax relief is £8000. If this client accesses flexi flexi drawdown and again assuming that he is a basic rate taxpayer in retirement he is effectively £5000 up on transaction.

    £5000 tax-free cash plus £15,000 taxed at 20% e.g. £12,000 net + £5000 tax-free cash = £17,000. That equates to growth on funds without any investment risk, yes again it does assume no adviser charges of i.e Actual costs after high rate tax £12,000 return after tax £17,000 = £5,000 gain which is 41.67%

    Example 3

    High rate taxpayer making a £20,000 gross, £16,000 net of basic rate tax payment into pension from ISA

    Meaning the client receives £8000 of total tax relief e.g. £4000 within the pension and £4000 through tax return therefore total tax relief is £8000. If this client accesses flexi flexi drawdown and assuming that he is a high rate taxpayer in retirement he is effectively £2000 up on transaction.

    £5000 tax-free cash plus £15,000 taxed at 40% e.g. £9,000 net + £5000 tax-free cash = £14,000. That equates to growth on funds without any investment risk, yes again it does assume no adviser charges of i.e Actual costs after high rate tax £12,000 return after tax £15,000 = £3,000 gain which is 16.67%

    Now I don’t know about you guys and ladies but there’s plenty of planning opportunities for advisers and maybe we need to change the mind set instead of supporting the viewpoint of insurance companies and annuity providers who have systematically tried to rip clients off over the last couple of decades.

    Yes there will have to be a number of risk warnings put in place but too many clients get stuck with small levels of income from annuities and then find themselves disqualified from various state benefits because of that very small level of income this cannot be right.

    I also think that over a period of time this will give a big incentive for people to save particularly those on medium level incomes which is primarily the target group this is aimed at, after all we don’t want these individuals reliant on state benefits not with an ageing population.

  33. It has been said here that the FCA seems to think that annuities are safe and drawdown is risky. But in truth the precise opposite is true.

    Let’s look at a £40k pot:

    Safe annuity route: take 25% TFC that’s £30k left which with a c 5% annuity rate at 65 = £1,500 pa. So you need to get the income for 20 years to get your money back and longer if you allow for even modest net investment growth so that’s 20 years of risk…

    Risky flex drawdown take £40k day one less tax = ZERO RISK

    So you buy a flash car and are then £100 pm worse off for life but – the value that £100 is decreasing by the rate of inflation each year. From a risk perspective its a no brainer – but whether it is wise overall…

  34. I have just done a workshop on retirement options and call this – the utility value of money

  35. @Billy
    Given that the regulator might be reading I was trying to keep it simple 😉

  36. @Simon Webster

    It is thinking like that which has made the UK the most personally indebted country in the world.

    I thought we were supposed to be the guardians of our clients’ assets.

  37. @Harry

    The last thing I am is guardian of client assets per se. I aim to help my clients achieve their objectives without any prior agenda.

    The comment above was addressed specifically at relative risk and I stand by my position that getting hold of your money now is a lot less risky than waiting 20 years to get it back – especially when the income given up is relatively trivial.

    I deliberately left the question as to whether such a course of action was wise hanging. In fact I might well council a client against taking it all out. But my original comment was addressed purely at the deemed investment risk of apparent concern to the regulator – the focus of the article.

    To be honest I see few if any clients who would be driven into debt by the loss of less than £100 a month…

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