The Financial Conduct Authority has not yet figured out the right set of risk warnings for the array of new innovations in the drawdown space following the radical changes announced at the Budget and confirmed in draft legislation earlier this summer, according to Hargreaves Lansdown.
Tom McPhail, head of pensions research at the firm, said: “It is imperative that all ‘decumulation’ solutions are regulated the same, whether they are annuity purchase, drawdown or ‘unsecured funds pension lump sum’, from a contract-based scheme or a trustee administered scheme.”
He made the comments as he questioned why annuity alternatives such as drawdown are seemingly no longer deemed as risky as they were prior to the Budget, as another provider plays their hand in the at-retirement market by launching a new drawdown fund.
AllianceBernstein launched its new at-retirement product, ‘lifetime pension investment strategy’, on Monday (15 September), which combines its existing target date funds range with a new ‘Retirement Bridge’ income drawdown solution.
Mr McPhail said: “Putting an insurance company or trustee body behind the risk doesn’t eliminate it, the risk is just moved somewhere else. Investors have to understand what those risks are if they are being signed up to them.”
Mr McPhail warned that with new options coming onto the market at the moment, unsophisticated investors face being ‘enrolled’ into risky drawdown plans without any understanding of how they actually work.
“It is no good telling a scheme member in ten year’s time that you’re sorry she’s run out of money but there’s nothing to be done because she went into ‘the wrong kind of drawdown’.
“Whatever solution an investor ends up with, they have to be made aware of all the risks involved. Whoever is providing that solution has to take responsibility for ensuring investors aren’t exposed to inappropriate or unexpected risks.”
Tim Banks, managing director of AllianceBernstein’s pensions strategy group, said: “Retirement Bridge’s age-appropriate investment approach and lower-cost than conventional drawdown makes it ideally suited for the vast majority of the over 400,000 DC members retiring every year.
“Over 80 per cent of DC members currently save into a default pension strategy, meaning it is vital to also provide a robust retirement default solution when it comes to taking a retirement income.”
David Hutchins, pnsions strategy group head, added that the idea behind the product is that “individuals should not be rushed into making binding retirement decisions that they are insufficiently prepared for”.
