The FCA is proposing that firms offer a new 'default' investment option to help non-workplace pension customers save for their retirement.
Currently non-workplace pension customers have to choose their own investments from an increasingly wide range of options. This complexity can make it hard for some customers who do not take advice to choose investments that meet their retirement needs.
Under the proposals, the default option would need to be an appropriately diversified basket of investments and take account of climate change and other environmental, social and governance risks. As a customer approaches retirement, their investments would be changed to lessen the impact of any market downturn on their savings.
Under the proposals, non-workplace pension providers will also warn customers holding high levels of cash and prompt them to consider investing in other assets with the potential for growth. The aim is to ensure pension savers have as big a pension pot as possible at retirement.
The FCA invites responses to the Consultation Paper by 18 February 2022, when the consultation will close.
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.
'The proposals form part our wider work on pensions which is designed to ensure that customers are better supported throughout their pension journey.'
Notes to editors
- Read CP21/32: Improving outcomes in non-workplace pensions.
- Responses should be emailed to [email protected] by 18 February 2022. The FCA will consider all feedback received and expects to publish finalised rules in 2022.
- The FCA published a Discussion Paper in 2018, seeking to better understand how well the non-workplace pension market was working for consumers. A Feedback Statement followed in 2019, revealing a lack of competitive pressure driven by low consumer engagement with complex and confusing products and charges.
- The FCA and TPR published a joint Discussion Paper in September 2021, focused on assessing value for money (VFM) across all defined contribution pension schemes, including non-workplace pensions. The paper set out possible metrics and benchmarks for assessing VFM in terms of investment performance, service, and costs and charges.
- The FCA’s Business Plan 2021/22 outlined regulatory priorities for the year ahead, including ensuring people can choose appropriate pension products that offer them better value for money.
- The Consumer Investment Strategy published by the FCA in September set a goal of reducing the number of consumers exposed to inflationary risk by holding excessive levels of cash when a better return could be secured through investing in retail investment products.