The FSA has urged advisers to think ‘very carefully' before using accelerated pension drawdown schemes.
It warns schemes like Talbot & Muir's, which allow consumers with an alternatively secured pension (ASP) to take pension income above Government Actuary Department (GAD) limits, are likely to breach TCF.
Speaking at a conference in London, the FSA's manager of pensions and other products policy, Milton Cartwright, says the regulator will be keeping a close eye on the practice.
"Advisers and SIPP operators need to think very carefully before offering these products to consumers, as it is very unlikely an investor will benefit from having their pension fund run down to nothing," he says.
In October this year, SIPP provider Talbot & Muir (T&M) revealed it was offering Accelerated Pension Withdrawal to its customers. The product allows them to withdraw up to 24.9% of their pension fund, even if they had already hit their annual GAD limit.
T&M says the product falls within HMRC rules, and can help consumers avoid the 82% tax they would face on death, though they would still face a 55% charge for exceeding GAD limits.
The group says it has received a lot of interest in the products from advisers with top-end clients with specialist needs.
However, the product has been highly controversial and has been criticised by other providers and advisers.
David Trenner, technical director Intelligent Pensions, says: "Frankly I think Talbot & Muir are bringing the industry into disrepute. A lot of consumers will say they want this product, but it is highly unlikely to be in their best interests."
"Now the rules are starting to be abused, it is only a matter of time before HMRC crack- down, and the FSA seems to be taking an interest from a TCF perspective as well."
Nathan Bridgeman, director of pension consultancy at T&M, says he understands the FSA's concern surrounding the product, but says his firm has taken steps to ensure the product is not sold to unsuitable clients.
"We are not marketing this product in any way; it is just an option we decided to make available after some advisers said their clients could benefit from it," Bridgeman explains.
"It is a very niche offering, and we are examining it on a case-by-case basis to ensure the client is suitable for this type of retirement strategy."
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