The Financial Conduct Authority has said Isas could benefit from similar investment pathways to those used for pension drawdown, providing a first glimpse of its thinking around helping cash investors into low risk products.
Sarah Pritchard, the watchdog’s executive director for markets, said in a speech at the annual Pensions and Lifetime Savings Association Annual conference today (October 14) the regulator had reason to believe the pathways were working for pensions and was looking at whether a similar structure could work for Isas.
She said: “Although it is early days, initial data from a survey by [the] Association of British Insurers suggests that 40 per cent of those who use investment products are taking up the pathway investment solutions offered.
"We will be doing a post implementation review after 1 year, i.e after Feb next year, and will be looking to see whether this choice architecture/guidance has improved outcomes for consumers.
"If it has then this framework could be used in other situations. Our Consumer Investment strategy talks, for example, about introducing a similar guided sales wrapper for stocks and shares Isas."
The FCA introduced its consumer investments strategy on September 15, in which it said it was working on new rules for giving guidance on straightforward products such as Isas and tracker funds.
But the watchdog held back on offering any further details on how this guidance would work.
Investment pathways - or “choice architecture” - for pension drawdown were introduced by the FCA in February 2021 to address the issue of “significant numbers” of people concentrating on only the 25 per cent lump sum when accessing their pension, without knowing where their remaining pension was invested.
They force pension providers to offer their non-advised customers a choice of four investment pathways based on their retirement objectives.
“Prior to investment pathways (and the cash warnings which were introduced at the same time) people who did not get financial advice were more likely to be defaulted into cash or cash like investments,” Pritchard explained.
“This is not a good outcome for consumers and is not a sign of the market working well.”
A similar problem can be found in the investments space, the FCA said in its consumer investments strategy.
To help consumers with big cash savings but high tolerance to risk it is considering both simpler advice and guidance options, it said.
The FCA said guidance in particular was an area it had received a lot of industry feedback on.
Today the FCA director added she wants to see the pensions industry regularly direct people to PensionWise - a government service which offers free, impartial guidance about defined contribution pension options.
Pritchard cited a number of initiatives the FCA has been working on in this area: “We have consulted on the requirements to deliver the nudge at the point that people want to access or transfer their pensions for the purpose of decumulation, which is the requirement that parliament has legislated for.