FCA finds drawdown providers breaching rules on non-advised sales

"High quality independent and impartial guidance is already established and standing by to provide the support they need and if they won’t engage voluntarily then they need a stronger nudge."

The FCA found that firms were not always consistently highlighting charges, particularly when customers were accessing drawdown by a variation of their contract, and that customers received detailed charges information at the start of the contract, but not on an ongoing basis.

It also saw examples of firms not providing Open Market Options Statements or KFIs in a 'durable medium' or in good time, and evidence of firms selling drawdown contracts online or over the phone but not sending a hard copy of the relevant product information at the right time.

Additionally, it raised concerns that some firms did not provide comprehensive information about charges and investment returns, making it difficult for customers to review their drawdown decision and determine whether it still meets their needs.

However it acknowledged that the information provided was "generally comprehensive and clearly set out" and that "as a general observation, firms provide customers with a large amount of information to help them make informed decisions".

The FCA was more concerned that customers do not always read this information when they access their pension savings.

The review found that customers "appear not to be fully engaged with the risks of drawdown", particularly when accessing the pension commencement lump sum without considering what to do with the rest of their pension funds, and are therefore potentially investing in unsuitable investments.

It added that some customers are making the decision to enter drawdown before contacting firms, meaning they are not to be open to exploring the full range of options available to them.

Other customers not considering the investment choices of drawdown, increasing the risk of running out of money in retirement, or having less money than they were expecting.

The FCA concluded that "many customers who take drawdown without advice may need further protection to manage their drawdown effectively, particularly disengaged customers".

Stephen Lowe, group communications director at Just Group, commented: “The review is generally positive that firms are fulfilling their obligations but despite these efforts many customers wanting their cash aren’t taking any notice. Those wanting pension cash early have already made their minds up and aren’t open to exploring options or shopping around.

“We reject the school of thought that they should be left to it, to make their own mistakes, because helping will be too complex or frustrate them. High quality independent and impartial guidance is already established and standing by to provide the support they need and if they won’t engage voluntarily then they need a stronger nudge.

“Our view is that the FCA is right that those taking drawdown without advice may need further protection to manage their drawdown effectively. And we support those MPs and Lords who have been pushing for a more robust independent and impartial guidance framework in the Financial Guidance and Claims Bill and are disappointed that the government has so far ignored these calls. There is still time for further amendments and we hope this review encourages the government to make the required changes.”