‘If they’re not getting proper financial planning it could be a concern – if it’s not ok [for a client] to take income during tough times. But markets have been reasonably good this year,’ Ellis said. 

I had not previously realised that an income drawdown plan involves taking income when markets are up. I worry for advised clients in Japan who saw their markets go down for two decades.

Ellis said it was difficult for unadvised clients to understand what a ‘sustainable’ level of income looked like. This was a concern, she said, in the wake of a growing advice gap and the rising number of orphaned clients (those left without an adviser) on platforms.

I had been labouring under the misapprehension that a sustained level of drawdown was what a pension gave you. But clearly I am wrong. The sustained level of drawdown is what an adviser recommends (except when markets are falling). Savers who decide what to do for themselves are running unwanted risks.

It seems that savers are actually being disadvantaged by the consumer duty which is creating “orphaned clients” – presumably clients who lose their advisers.

‘The rise in orphan clients is a result of consumer duty and [advice firms] having to fulfil ongoing servicing requirements,’ she said. ‘At the same time, I’m not sure it’s a duty to the consumer. Even if it’s a low level of service – having an adviser is definitely more beneficial’.

I think this is suggesting that there might be a way of turning pots to pensions that doesn’t involve scrutinising each transaction , monitoring market conditions and ensuring the sustainability of the plan to meet the cashflow needs of individual circumstances.

I don’t know what that way would be , but suggest it might involve using an annuity and maybe even a pension.

The FCA Retirement Income Study 

The findings from the data from this study should not be a cause for concern provided that the income withdrawn is meeting the needs of those whose money is being drawn-down.

People taking money without advice is only a problem where the advice forsaken was worth it. Although I can see how advisers can help, many people are becoming “orphans”, either because getting their advisory Consumer Duty is too expensive for them or because advisers can’t afford to spend the time to meet promises at the pre-agreed rate.

The Retirement Income Survey does not tell us whether the non-advised drawdown strategies being employed are working. FCA analysis continues to show that well over half of those with smaller pots are drawing down at 8% or more – well over any sustainable rate I have seen published. By “small” , I mean pots with less than £100k in them – many would consider £100k a large pot.

Note – the colours in the chart do not match the colours in the explanation but can be matched

Figures shown are for non-advised clients; advised client numbers aren’t illustrated

Modelling done by AgeWage using a simulated data set suggests that there is no sustainable rate in drawdown.  The sustainability of the drawdown over a lifetime depends on how long people in drawdown live, the rate of drawdown and the timing and incidence of payments (subject to the vagaries of market timing and of the cost of intra day pricing fluctuations). If we assume the sustainable rate is the average annuity rate (currently around 6.5%)

There are two counter-factuals for the FCA to consider

1. Whether the value for money drawn down improves with advice (and by an amount that makes the cost of advice VFM).
2. Whether collective vehicles such as CDC , annuities or DB pension transfers-in provide a better deal than either advised or non-advised drawdown

We really need benchmarks to justify advisor’s assertions.