SIPPDec 24 2021

FCA proposals see Sipp savers warned on ‘easy option’

Search supported by
FCA proposals see Sipp savers warned on ‘easy option’

Savers should avoid going for the easy option when choosing investments after the regulator said providers need to offer default investment option to non-advised clients.

Tom Selby, head of retirement policy at AJ Bell, said the Financial Conduct Authority’s proposals may have an adverse effect on engaged savers by making them pick a default fund when they would have otherwise choosen their own investments.

Under the FCA’s proposals, published in November, the default option offered by personal pension providers 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 rules will be similar to the requirements already in place for auto-enrolment pensions, to put workers into a default investment option.

Selby said: “Care will need to be taken in ensuring engaged customers who were planning to build a retirement portfolio based on their circumstances are not encouraged to simply go for the ‘easy option’ of investing everything in a single default fund that might be less appropriate.

“There will also likely be significant debate over the regulator’s assertion that a ‘lifestyling’ investment strategy is likely to be appropriate in a world where most people stay invested through drawdown in retirement.”

Selby warned that although personal pension savers tend to have a level of engagement with their investments and pots, by giving a default option some may become disengaged or will struggle to choose where to invest.

“In a worst-case scenario, they will end up shoving all their pension in cash and risk their money being eaten away by inflation – a risk that is likely to become more prevalent with inflation back on the agenda in 2022.

“Having a default fund which is broadly suitable while also issuing warnings to those who invest in cash over long time periods – the two key proposals from the regulator - could therefore help improve outcomes.”

There will be exemptions to the rules though.

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.

What do you think about the issues raised by this story? Email us on to let us know