21st November 2014
Insurer Aviva has said those with less than £30,000 in their pension pot should not go into drawdown.
In its written evidence to the Work and Pensions select committee, Aviva said the guidance guarantee that is being introduced alongside new pension freedoms next year should tell people with £30,000 or less in their pension that drawdown is unlikely to be suitable.
However, it would be difficult for those giving guidance to retirees with small pots to tell them to steer clear of drawdown because it would constitute financial advice, which is regulated whereas guidance is not.
In its submission, the first said: ‘If the customer has under £30,000 of retirement savings, drawdown is unlikely to be appropriate, yet currently the non-advised guidance would state that highlighting this was classed as advice.’
This comes weeks after the City watchdog warned pension drawdown is unlikely to be suitable for those with saving of less than £50,000.
The Financial Conduct Authority (FCA) is at odds with the Treasury over the new pension freedoms that will allow anyone aged 55 or over to use their pension like a bank account using drawdown.
Drawdown allows a retiree to keep their pension invested and take income or take the whole savings pot in cash.
Changes by the Treasury mean retirees can effectively use their pension as a ‘bank account’ but the FCA has warned it will not be suitable for those with pensions of less than £50,000.
Speaking at the Taxation of Pensions Bill committee hearing, FCA head of investment David Geale said drawdown is ‘unlikely to be suitable’ for those with such sums but that the regulator’s stance could change over time.
‘We previously said that for customers with under £50,000 in their pot, it was unlikely to be suitable to access drawdown under the current product range…but there is no reason why, over time, flexible access products need to be poor value for money or to represent a high element of risk. It is about people understanding what they are getting into.
‘We will have to see how the market develops to answer that question fully. Under the current regime, there is a limit to how much people should have before they go into those products.’