Providers have raised concerns about the way in which the Financial Conduct Authority’s proposals suggest issuing a cash warning for personal pensions.
In their individual responses to the FCA consultation, Improving outcomes in non-workplace pensions published in November, both Aegon and AJ Bell have criticised the regulator’s proposals.
Aegon does not think these should be called 'warnings' at all, but rather an 'alert', while AJ Bell suggested it should not be prescriptive, adding that this move would need to be implemented better.
In the proposals, the FCA said 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.
Steven Cameron, pensions director at Aegon, said that at a time of sharply rising inflation, it remains inevitable that holding cash over any longer time-period would lead to a loss of value in real terms.
But he explained that while Aegon support the FCA’s plans for firms to issue additional communications to customers who have more than 25 per cent of their funds in cash for six months or more, it can be relayed in a better manner.
“However, we believe these should be described as ‘alerts’ rather than warnings, setting out the risks of holding significant cash but balanced with an explanation of when cash holdings may serve a purpose and also that investing isn’t risk free,” he said.
“At times of heightened market volatility, there’s a risk a ‘warning’ prompts customers, particularly those without access to advice, to move from cash into investments just before a market fall. While it’s to be hoped any such losses will be short term, the pros and cons need to be set out in a balanced way.”
Cameron said that while the FCA has suggested that firms might be given the flexibility to defer communications if they believe it is ‘the wrong time’ to issue a warning, he does not see this as workable.
“It’s nigh on impossible to know where markets will move next and determine what is the ‘wrong time’,” he said.
“Deferring a communication for three months might benefit some customers if they then didn’t move out of cash before a market fall. But if markets actually rose, deferring investing could mean some customers lose out, leaving providers open to being judged with the benefit of hindsight.”
He argued that for the majority of pension savers, holding significant amounts in cash for any longer period is very unlikely to give the best customer outcome, but communications alerting them to this must be balanced.
Meanwhile, Tom Selby, head of retirement policy at AJ Bell, said while he agreed with the City watchdog’s intention, he raised concerns about the way in which the FCA would implement these cash warnings.