EV has urged the pensions industry to “act now” and make solutions fit for purpose to prevent poor consumer outcomes when entering drawdown.
The financial technology firm has published a 32-page white paper to address the key issues of income drawdown planning. The paper, entitled Drawdown: The Mirror Image of Accumulation includes a five-point plan to help advisers, pension providers and fund managers improve the solutions on offer for clients entering drawdown.
Bruce Moss, founder and strategy director of EV, said: “We’re looking to highlight the inherently damaging issues undermining many tools and processes currently being used for income drawdown planning. There are some very sub-optimal outcomes that could arise unless urgent action is taken.”
Moss said top of the list is the high probability that in five to 10 years’ time a number of retirees could find their pension fund diminished to the point it can no longer sustain their income needs through retirement.
Moss commented: “We are determined to do all we can not to let this happen. So we’re sounding the alarm now about the damage inaction will likely have on the very people whose interests in which we are duty-bound to act.”
EV’s five point action plan includes:
• tailoring risk questionnaires to the needs of those drawing an income rather than using accumulation attitude to risk questionnaires;
• ensuring risk is explained in terms of the impact on a sustainable income;
• risk rating funds and portfolios used for income drawdown in terms of income sustainability
• ensuring retirees have annual income reviews as well as at times of market dislocation
• that advisers and providers recognise that the FCA’s illustration rates are wholly unsuitable for determining drawdown income levels.
Moss added: “We’re not proposing the undertaking of major initiatives, instead our five point plan is a short list of simple and achievable steps that can be taken relatively easily. To our mind, inaction would constitute a wilful neglect of duty to ensure positive consumer outcomes.
“To use the analogy of a mirror, everything is back to front and so is the way that investment risk impacts outcomes for consumers saving and drawing down on retirement savings.
“The problem is that currently, while most people agree that investment risks impact accumulation and decumulation differently, many in the industry are using the same tools to manage decumulation and accumulation. That has to stop in the interests of doing the best we can for consumers.”