Platform and self-invested personal pension (Sipp) providers will be required to warn investors of the impact inflation can have on their pensions under new guidelines.
The Financial Conduct Authority said today (December 1) that all non-workplace pension providers will need to issue a “cash warning” to consumers with a certain level of cash in their pension, outlining how high inflation will erode their savings.
This is despite concerns from the industry, including from Aegon and AJ Bell, who flagged their worries to the regulator in a previous consultation.
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.
The FCA said the cash warnings are intended to protect consumers who have already held “a significant and sustained” level of cash in their pension, and are intended to prompt consumers to consider whether they should remain in cash or switch to “growth assets”.
The new regulations, which have to be implemented by December 1 next year, are part of the FCA’s efforts to improve consumers’ engagements with pensions.
The regulator acknowledged that within the next 12 months firms have to implement the consumer duty as well, alongside high economic uncertainty.
However, it said this “must be balanced” against the ongoing harm to consumers who are struggling to make an investment choice with their pension.
Sarah Pritchard, the FCA’s executive director for markets, said: “Our proposals will encourage innovation while ensuring that we have the right rules in place to protect consumers.”
The regulator also confirmed previously consulted-on plans to require non-workplace pension providers, including platforms and Sipp operators, to offer a ready-made investment solution for non-advised consumers.
This is a result of regulatory research that has shown non-advised consumers buying a non-workplace pension often have little investment expertise and struggling to engage with the choice and complexity of solutions on offer.
“Some may end up in investments that are unlikely to meet their needs and objectives for retirement or may remain in cash,” the FCA said today.
“Others may be put off from buying an non-workplace pension at all.”
Andrew Tully, technical director at Canada Life, said it is a positive move that the regulator has listened to warnings and recognised that lifestyling will not be appropriate for all investors.
“Most lifestyle strategies are designed with wholly buying an annuity at a specific age and that is not what most retirees are doing and won’t be the best outcome for many, so we shouldn’t be requiring defaults to be designed in this way.”
He added: “Everyone is an individual and my belief is only through seeking regulated financial advice can most savers be confident in making the right ongoing decisions around investing and tax, navigating the rules as you continue through your retirement journey.”