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New rules now apply if you choose pension drawdown but do so without taking advice.

The Covid-19 pandemic deferred many events of all sizes, from the Tokyo Olympics to millions of foreign holidays. One of the less prominent delays was a change to the Financial Conduct Authority (FCA) rules on pension drawdown.

Back in June 2018, the FCA issued a consultation paper following a two-year review of the impact of the Pension flexibility reforms introduced in 2015.

One aspect which particularly concerned the FCA was those pension owners who, having received various prompts to seek advice, decided to access their pensions through drawdown without taking advice.

The FCA found:

  • Many of these individuals were solely focused on taking their tax-free cash and paid little or no attention to the investment of the remaining funds to be used for drawdown.
  • Around one in three were unaware of where their drawdown money was invested. Many others only had a broad idea.
  • Some pension providers were “defaulting” non-advised clients into cash or quasi-cash investments at drawdown. As a result, one third of the non-advised users of pension drawdown held their entire drawdown fund in cash.

The FCA concluded that its findings “strongly suggest that a significant number of non-advised consumers are likely to hold their funds in investments that will not meet their objectives for how they want to use that money in retirement”.

The FCA’s proposed solution to this was to mandate pension providers to provide a range of “investment pathways” for drawdown funds, based on the client’s objectives for their pension pot.

The regulator also proposed that there would be specific warnings issued to those who held more than 50% of their drawdown fund in cash or cash-like investments.

The proposals were due to be put into force in August 2020, but the implementation date was put back to February 2021.

With cash returns virtually zero, the delay has potentially been costly for some non-advised pension owners, especially with the rebound of the stock markets in the last year

Looking at the performance of the FTSE 100 index of company shares we see a range of 5577 – 7129. If your pension was overly invested in cash during that time and not able to take advantage of the rebound by being appropriately invested in the stock market it’s value will be affected for the future.

If you are unclear where your drawdown funds are invested, take note of the FCA’s concerns and then take advice – the investment pathways will be a help, but they are not an advised solution, tailored to your circumstances.

As ever we’re here to help – why not set up a chat with our friendly advisors to discuss your retirement planning on 0121-355-4455 or email us on appointments@oaklandswealth.com

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