For advised drawdown, the adviser should do their own shopping around for the most cost-effective solution and charge an appropriate fee for their advice.
The case is different for non-advised drawdown or where a client rolls over into their provider drawdown plan. As there is no adviser to identify the best solution, the onus is on the customer and they will benefit from clear information about both product costs and investment options. The FCA’s intervention in this area is most welcome.
It is worth making two comments about costs. The first is that if someone can reduce their running costs by 1 per cent, for instance from 2 per cent to 1 per cent, this does not have to be an invisible saving. In the right circumstances it could be taken as extra income. A 1 per cent saving on a £ 100,000 pension pot is £1,000 and who would not want an extra £1,000 a year? Secondly, the biggest impact on the returns is investment performance, which means a low-cost drawdown, but with unsuitable investment will produce a worse outcome than a higher cost drawdown with suitable investments.
Shopping around for the best drawdown plan is important, but as there are so many moving parts it is more complicated than shopping around for the best annuity but equally as important.
One of the paradoxes of drawdown is that it is a very easy thing to understand; you invest the pension pot and take regular income payments and when you die you can leave the money to the family. But it is a very complex thing to manage properly because a good adviser will be watching fund performance and any changes in attitude to risk or personal circumstances as well as monitoring annuity rates.
This is now probably one of the most difficult areas in personal planning, which means that advisers must constantly brush up on their skills and market intelligence while non-advised customers need all the help they can get.
William Burrows is Retirement Director of Better Retirement
