DEBATE: Is there a case for regulatory greater control over the option of a drawdown pension?
YES – Nitin Mehta, managing director of member value at the CFA Institute.
Some pensioners with meagre savings face a choice between the devil and the deep blue sea: is it better to suffer low retirement income now, or in the future? Low annuity rates and lengthening lifespans complicate the decision. Given the unattractive options, many choose higher income in the near term with special pension drawdown products, but risk becoming penniless later. The FCA is therefore right to ask whether additional protections are needed. The most vulnerable pensioners with low savings should be provided extra protection but the freedom to choose early drawdowns should not be curtailed per se. Instead, sellers of drawdown products should be held to a fiduciary duty of putting the client’s interests first. That can be discharged with a proper financial review of the client’s savings and retirement objectives. Such an arrangement may oblige the pensioner to buy expert financial advice. Ultimately, any extra protection would incur an associated cost, but this may be worth it to prevent pensioners from inadvertently damaging their retirement prospects.
Richard Parkin, head of pensions policy at Fidelity International.
Drawdown is a much misunderstood term. It just means somebody has started taking money from their pension. In many cases they’ll just have taken their tax-free cash and aren’t taking income at all. What the concern seems to be is that people who are looking to get an income for life from drawdown don’t understand that they may run out of money or may invest unwisely. Ideally people will get advice here but many may choose not to. Pension providers can offer support to help customers understand when money might run out. They can also provide guidance on investment choices. But people should still be free to use the product how they want to. Putting more restrictions around people taking regular income is ridiculous when they can cash in their entire pension pot in one go. We need to make sure people understand the more basic message that the only product that provides a guaranteed income for life is an annuity.