The presenter of Radio Four’s Money Box has raised concerns about providers pushing drawdown, stating that it is a “potential mis-buying scandal”, arguing that advisers should be recommending more cash accounts to at-retirement clients.
Speaking at the FTAdviser Retirement Freedoms Forum in Edinburgh today (24 September), Paul Lewis said it was unacceptable that so many providers had pushed pension pots into drawdown when trackers have lost nearly 16 per cent in the last six months.
He told delegates “that [drawdown] is not what you want in life. You want certainty, not risk.”
According to data published by the Association of British Insurers, in the first three months since the April at-retirement reforms, £2.5bn was paid out from pension pots and, of this, more than £2.3bn was being used to buy regular income products such as annuities or income drawdown.
When asked whether the amount of drawdown business being done at the moment constitutes the start of a mis-selling scandal, Mr Lewis said: “No, but it is a potential mis-buying scandal.”
He said: “Somehow the industry has to rescue something from this [pension freedoms] wreckage. It has to come up with a low cost product that gives consumers certainty and flexibility.
“It is something the industry is not getting. It is just promoting expensive, invested, drawdown products that carry on taking a percentage of our money for doing almost nothing.”
Mr Lewis said advisers should be experts in cash accounts, as they deliver the certainty their at-retirement clients say they want at this stage of their life.
“The one thing we know about cash is you go to the bank, put £10,000 in your savings account and in a year’s time you get your £10,000 back plus £200.
“You have still got your capital, and a little bit more, and you have done no work. Fantastic.
“I want to make clear I am talking about cash accounts, not cash funds, which are a complete rip-off. You can find cash accounts that pay 2 per cent over two years. Here is a guaranteed tax-free return.
“People want certainty.”
However advisers gathered at the event were quick to question Mr Lewis over whether cash accounts were a good option for their clients who could find their savings eroded by inflation if they were placed in these vehicles.
James Rainbow, head of UK financial institutions and strategic accounts of Schroders, said from an investment house’s perspective he fundamentally disagreed with Mr Lewis on cash accounts.
He said if you rely on cash there is no certainty because it can be eroded by inflation.
emma.hughes@ft.com
