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October 2, 2009 7:20 pm
Financial advisers have warned that investors may have been missold income drawdown products, which allow personal pensions to stay invested in the stock market after people retire.
Investors are making record numbers of complaints after the value of their pensions fell sharply last year, with many claiming they did not understand the risks involved.
The Financial Ombudsman Service looks set to receive its highest ever number of complaints about income drawdown this financial year. It has so far received 83 complaints, compared with 130 for the whole of the previous year.
However, income drawdown products are growing in popularity as the stock market rebounds and investors are tempted to leave their money invested.
Hargreaves Lansdown, the financial adviser, said this week that demand for income drawdown products was up 142 per cent in the past six months compared with the previous year.
People who move their pension into income drawdown can keep it in the stock market and draw an income from it. It is often recommended to people with larger pension pots who do not want to buy an annuity, which ties up the money with a life insurer.
But unlike an annuity, the income from a pension in income drawdown can run out, leading to warnings that some investors may not have understood the risks involved.
“You could, over time, run your fund down to fairly drastic levels,” warned Andy Cowan, head of wealth advice at Towry Law, the financial adviser.
“We have seen a lot of people who decided to do income drawdown but have been bamboozled about the risks and never really understood the decision they have made.”
He blamed commissions for cases of missold income drawdown products. Commission on the sale of an annuity is about 1.5 per cent, but income drawdown sales can pay 5 per cent.
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