Pensions  

FCA sets out default funds for personal pensions

FCA sets out default funds for personal pensions

The City watchdog has proposed that personal pension providers should offer a default investment option to help the non-advised save for retirement.

Under the Financial Conduct Authority’s proposals, published today (November 25), this default option would have to be a “diversified basket of investments” and take account of climate change and other environmental, social and governance risks. 

As the saver approaches retirement age, the pot would be moved into less risky investments so any market downturn would have less effect on their savings.

The regulator has also proposed that personal pension providers should warn savers that are holding too much cash and prompt them to consider investing in other assets to grow their pot as much as possible.

These new rules would be similar to the requirement already in place for auto-enrolment pensions to put workers into a default investment option.

However, while workplace pension savers are automatically placed into the default option if they do not make an active decision, this will not be the same for personal pension savers.

Instead they would have to actively accept the offer of the default option.

According to the FCA, the default option must be “presented prominently and on a stand-alone basis” and if it is shown alongside other investment options it must be presented with “equal prominence”.

Non-advised savers who have no need for the default option can simply decline or ignore the offer.

Exemptions

Providers do not have to offer a default option to savers who have received a personal recommendation from an adviser for their personal pension, instead it will be for the adviser to recommend suitable investments.

Those providers which do not accept any new non-advised consumers into their personal pension products would not be required to make a default option available.

But savers will need to prove that they have taken financial advice.

The FCA's rules dictate that transactional advice on a non-workplace pension must include a personal recommendation on the underlying investments, which is the responsibility of the adviser. 

The regulator has said it it not proposing that personal pension providers will have to confirm that transactional advice has included a personal recommendation on the underlying investments.

But a provider would not have “reasonable grounds” to say that someone has received a personal recommendation from an adviser if:

• the information is more than 12 months old;
• the consumer is transferring from an advised product ; and
• the consumer pays for advice about other investments

Sarah Pritchard, the FCA’s executive director for markets, said: “People spend decades working hard to build up a pension to support them in retirement, and we want their savings to work just as hard for them. 

“These proposals will ensure that customers who don’t take financial advice can benefit from a professionally designed investment strategy, and reduce the risk of their retirement income being eroded by inflation.