accelerated drawdown - " regulatory risk"

SallyG

http://www.moneymarketing.co.uk/news-and-analysis/pensions/lg-osborne-pensions-overhaul-blocked-by-fca-annuities-stance/2008317.article
reporting L&G pensions strategy director Adrian Boulding
"He says: “Steve Webb has said if someone wants to buy a Lamborghini and live on the state pension then the Government is quite relaxed about that.

“We need the regulator to be equally relaxed. If we put somebody into an accelerated drawdown product there is a risk that in 10 years’ time they will have run out of money and are on the bread line and can claim against their adviser or provider.

“At the moment we don’t even do capped drawdown without advice. We just do not want that regulatory risk on our balance sheet.

“We will need to get the regulator to tell us very clearly what are the risk warnings we need to get across to the customer and on what basis can we write business if the customer ignores them.” "

On what basis can a customer claim against an adviser or provider if the customer has emptied the pension pot?

Linton

Hows about...

There will need to be some "product" that supports drawdown. A normal current PP wouldnt do as there has to be a link to PAYE. That product would need to be "sold" in some form. A customer could claim that they were sold a product that was inappropriate to their investment knowledge, understanding of financial matters, and capacity for risk-taking. This doesnt seem much more unreasonable to me than the current situation with transferring out of DB pensions.

Even if the customer was shown not to have a case the costs of defending it could be significant for the pension companies so they need guidance to ensure that it cant happen. Otherwise they may well only permit access to the new drawdown on the approval of an IFA who then bears the liability.

OldBeanz

How much did L&G's share price drop in the past week?

Triumph13

If they can't come up with some very clear rules on the lines of 'if the customer signed this document then they don't have a leg to stand on' then there simply isn't going to be a functioning market. Which, given that everyone is now going to be terrified of being sued for misselling an annuity, could bring the whole system grinding to a halt if we're not careful.
It needs to be made absolutely clear that customers have no more recourse against the provider if they choose to blow their pot than they do against their bank if they choose to spend all their money.

gadgetmind

Linton wrote: »

A normal current PP wouldnt do as there has to be a link to PAYE.

Surely they have that already?

That product would need to be "sold" in some form. A customer could claim that they were sold a product that was inappropriate to their investment knowledge, understanding of financial matters, and capacity for risk-taking.

How is this different to taking out capped or flexible drawdown with someone like Hragreaves Lansdown now? Go to web site, press buttons, job done!

kidmugsy

I have the answer!!!! The government should offer to supply special government-guaranteed annuities so that people can buy them confident that they are safe as the Bank of England, at trifling management costs. They could be called Brown Annuities, in honour of our greatest ever Chancellor. What could possibly go wrong?

dunstonh

On what basis can a customer claim against an adviser or provider if the customer has emptied the pension pot?

Depends on the involvement of the adviser and what the advice was and the risk warnings are.

The regulatory risk is a major one. The Govt wants consumers to decide and thinks they have the responsibility. However, the regulator (and ombudsman) think the complete opposite and treat drawdown as high risk.

I know the compliance company I use are racking their brains on this and I suspect there will be a lot of discussion on this as there will be claims companies putting in complaints in years to come. "did you draw all your pension and spend the money? Now you can claim mis-sale and get compensation"

If they can't come up with some very clear rules on the lines of 'if the customer signed this document then they don't have a leg to stand on' then there simply isn't going to be a functioning market.

That may sound logical. However, the FOS tends to disregard signed declarations like that as it feels that unless the person understands the risks and what they are doing then they are not in a position to say that they understand. (I am not joking).

Which, given that everyone is now going to be terrified of being sued for misselling an annuity, could bring the whole system grinding to a halt if we're not careful.

Yes. That fear now exists. It isnt so much the fact that it shouldnt be difficult to justify an annuity sale. It is more down to claims companies putting in opportunistic complaints which cost £500 a pop when they go to the FOS and the average adviser remuneration is around £650. So, its not as if there is a margin to carry try-it-on complaints.

gadgetmind

dunstonh wrote: »

"did you draw all your pension and spend the money? Now you can claim mis-sale and get compensation"

Will you be able to do that and still keep the Lamborghini?

(As it happens, the only person I know who owned said vehicle was/is an FA for SJP!)

I think this is all a storm in a teacup. People have always been free to blow ISAs, inheritances, insurance payouts, PCLS, anything they like, so now we just add pension savings to the list.

Other countries have been able to draw on pensions like this for decades, and the world hasn't ended, so what's new?

atush

Maybe some of those countries don't have as lavish a benefits system?

dunstonh

I think this is all a storm in a teacup. People have always been free to blow ISAs, inheritances, insurance payouts, PCLS, anything they like, so now we just add pension savings to the list.

I think you need to understand the regulator and ombudsman.

Someone with £100k in ISAs drawing money money as an "income" and maybe making the odd ad hoc withdrawal is not considered high risk. Its considered normal and rarely results in complaint and if it does then most complaints would fail (unless the person didnt have the capacity for loss to be invested in the first place).

However, someone with £100k in a pension and wanting drawdown is considered a high risk transaction. The FCA places higher scrutiny on them and a complaint about erosion of capital is likely to be upheld if the person doesnt have the capacity to cover that loss and the understanding of what they are doing.

Two similar tax wrappers but a totally different approach by the regulator and ombudsman. You cannot apply common sense logic and it does need the regulator to step up and say what the risk warnings should be and what it would expect to see happening. Historically, the regulator will not do that. The FSA preferred to leave things vague and not help by telling companies to decide for themselves and if they got it wrong, they would fine them. The FCA hasnt really had a test yet (although its position on independence is still vague).

These days, fines are not a slap on the wrist. The fines are large enough to shut down whole parts of companies as its cheaper not to do the business rather than do it.

gadgetmind

dunstonh wrote: »

I think you need to understand the regulator and ombudsman.

Well, you can give it a go, but I've never understood them in the past!

However, someone with £100k in a pension and wanting drawdown is considered a high risk transaction.

Why is it considered higher risk than drawing down income from any other source?

Two similar tax wrappers but a totally different approach by the regulator and ombudsman. You cannot apply common sense logic

I'm an engineer to apply logic to everything I do. If the regulators don't, then someone maybe needs to change and it's not going to be me!

The fines are large enough to shut down whole parts of companies as its cheaper not to do the business rather than do it.

So, if I take advice, it's likely that I won't be presented with the option to pursue some entirely logical and beneficial disinvestment strategies simply because they could result in the adviser being fined?

Is this "whole of market"?