Just Retirement said that the rapid growth in the number of people choosing drawdown since last April raises questions about how regularly their arrangements are being reviewed to ensure they remain suitable, particularly against a backdrop of falling stock markets.
“People in income drawdown need to be able to sleep well at night during the bad as well as the good times,” said Stephen Lowe, Just Retirement’s group communications director. “A potential problem is that there is now no requirement to review how the drawdown fund is performing.”
Under the old capped drawdown rules, the maximum income available to be drawn from the fund had to be recalculated every three years up to age 75, then every year, to ensure it was sustainable.
“These reviews were a trigger for intermediaries to review clients’ arrangements on a regular basis,” said Stephen Lowe. “Under the new rules, people can take what they want, when they want – there is no equivalent trigger for a review and many of today’s drawdown customers may not have taken advice which leaves them especially vulnerable.”
He said the onus is on professional advisers to put their own review processes in place to ensure their recommendations remain suitable throughout the time clients are in drawdown and that this can be proved satisfactorily to the regulator.
“The best financial advisers know their clients and so keep up with their changing circumstances and requirements. The new rules have opened up drawdown to a wider range of retirees, many of whom have more modestly-sized pensions and may be more cost-conscious but who need to be monitored closely due to limited capacity for risk.”
Just Retirement said that intermediaries should consider using a “triage” letter that asks drawdown clients a series of questions to find out whether they should undertake a full review. A letter developed by Just Retirement*, available to intermediaries via justadviser.com, asks questions including:
• Would the client like to review the income being taken?
• Does the client have any health or lifestyle conditions?
• Is the client worried about outliving their savings?
• Is the client happy with their exposure to investment markets?
“The idea is to uncover any change that might mean the original recommendations or decisions are no longer suitable, perhaps because of poor health, worry about how a pension is performing or a need to adjust the income,” said Stephen Lowe. “If they are happy how things are going then a full review may not be necessary. However, it’s only by asking the questions then you find out if a more fundamental rethink is required.
“When we recently introduced this idea to intermediaries in a webinar, more than eight in 10 responded to say they would or may adopt such a letter to use with clients.”
He said that clients’ appetite for risk and capacity for loss will change over time. “Retirees need to find the right balance between certainty of income and flexibility,” he said. “Reviews are a vital part of ensuring that balance remains suitable so that clients retain their peace of mind in stormy conditions.”
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