Pensions  

Aegon admits more work needed to explain drawdown risk

Aegon admits more work needed to explain drawdown risk

Gavin Casey, distribution director of Aegon, has said “it is really scary” when you consider the example of what happened in the markets following Black Monday and the impact for pension pots.

Aegon calculated for a 30-year investment horizon a positive return in the first year of plus 20 (per cent) means the saver has “got virtually no chance of running out of money.”

However if you get minus 10 per cent in that first year, and Mr Casey noted many individuals are already down 10 per cent since April, that increased your risk of ruin by up to a third.

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Mr Casey said: “One in three might run out of money based upon those market conditions. It is really important individuals understand what those risks are using those tools upfront.”

During the broadcast, which is now available to watch on demand, Martin Dodd, via Twitter, raised concerns about whether flexi-drawdown illustrations were doing a good enough job of illustrating the risks of this solution to saver’s pots.

He said what concerned him was the complexity of the key feature documents and client illustrations.

Mr Dodd asked the FTAdviser On Air panel what can be done to make the practicality of drawdown easy for clients to understand.

Mr Casey said: “Many providers and many advisers are working really hard to explain exactly how these options are going to work and what the implications are.

“As an example we have all had to start delivering retirement options packs in a completely different way as of February of this year.

“We are starting to see the information is much clearer and much more understandable for individuals but I think we all have much more to do on this.”

Chris Daems, director of Cervelo Financial Planning, said the FCA’s Financial Advice Market Review will have an impact on the disclosure of risks attached to flexi-drawdown products.

He said: “If the FCA is considering how to make advice and financial planning accessible to all one of the things we need to make less complex is the way we communicate.

“It will be interesting to see what the FCA comes out with on that.”

To watch FTAdviser’s On Air broadcast, and earn 30 minutes of CPD, click here.

emma.hughes@ft.com