Non-advised drawdown set for a shake-up in 2018

Non-advised drawdown set for a shake-up in 2018

Changes to non-advised drawdown will become reality next year as the Financial Conduct Authority is expected to publish its report on the retirement outcomes review.

Rachel Vahey, product technical manager at Nucleus, said this will be one of the hot topics in the pensions industry next year, especially if the watchdog includes a requirement that drawdown pension plans offer a default fund.

In July, the FCA published the interim report of its retirement outcomes review, an analysis of how pension freedoms have changed the way retirees access their pension pots.

Article continues after advert

Noting a significant spike in the use of drawdown products, the regulator said it was considering the introduction of "default investment pathways", prices for which would be capped at a certain level. 

If the regulator introduces the requirement for a drawdown default fund – which Ms Vahey believes shouldn't be applied if the client has a financial adviser – it might also consider a maximum charge cap, similar to auto-enrolment accumulation funds.

She said: "If it does, then expect some intense discussion over what level to set it at, as well as the design of the default fund."

Several industry voices have already spoken about the dangers of introducing such a requirement.

Steven Cameron, Aegon’s pension director, said a charge cap on non-advised drawdown could lead providers to stop offering these services, since they might not be able to cover their costs if such a charge is introduced.

Tom McPhail, head of policy at Hargreaves Lansdown, also said there were "some serious issues with a charge cap".

He said: "Undoubtedly a price cap would bring pressure to bear across the board, on advisers, product providers and fund managers."

Another change expected with the regulator's report is an overall review of the wake-up packs, which are sent by providers to individuals six months prior to retirement age, Ms Vahey said.

Insurer LV conducted a trial in 2017, where it replaced lengthy documentation sent to individuals by a "pension passport".

Those receiving the single page document were 10 times more likely to use the government’s guidance service Pension Wise.

Ms Vahey said: "Although this [wake-up pack changes] seems to have been a long time coming, changes could have been made a lot earlier."