In November of last year, the Financial Conduct Authority launched a consultation looking at what measures could be put in place to improve outcomes for consumers saving into non-workplace pensions.
At present, consumers buying and saving into a non-workplace pension have to choose their own investments from an ever-increasing range of options. This comes with an inherent amount of complexity which can make it hard for some consumers who do not take advice to choose investments that will meet their retirement requirements.
As well as poorly chosen investments, the FCA is concerned that some consumers hold cash in their non-workplace pension, and that, over the long term, cash holdings are at risk of being eroded by inflation.
The FCA are proposing that non-workplace pension providers:
Offer a ‘default’ investment option to new non-advised consumers
A professionally designed investment strategy could deliver substantially better outcomes for those motivated enough to know that they need a pension, but who lack the experience or time to choose the right mix of investments.
Issue cash warnings to consumers with sustained and potentially inappropriate levels of cash in their non-workplace pension
Cash warnings would show how cash savings are at risk of being eroded by inflation and prompt consumers to consider investing in other assets with the potential for growth (such as a default option, if available).
“Some people do undoubtedly make poor decisions or do not review their investment selections regularly enough, and a nudge to get them to rethink – particularly if cash amounts are high, could be a good idea. However, it is likely that many people receiving these letters will struggle to know what to do about it or where to go for help, so this must be accompanied by really clear and easy-to-follow guidance. The letters could generate some real concern and whilst this will alert them to the issue, the support provided to consumers needs to reflect this and an increase in the resourcing of telephone helplines as well as online functionality is required.”
“The ’default’ investment option is a good idea in theory and will help consumers with newer contracts, however, for those in more elderly contracts, the choices may be limited.”