FCA to warn pension savers about cash risk

The FCA also wants pension providers to offer a default pension investment option, particularly for pension savers struggling to choose pension investments.

The regulator will require pension providers to warn consumers about the corrosive effect of inflation on their pension investments, particularly cash savings.

The moves are part of two consultation documents announced today which, the FCA says, will pave the way for better consumer engagement with pensions, the forthcoming Pensions Dashboards and non-workplace pensions such as SIPPs.

In the its final rules on non-workplace pensions (PS22/15) the regulator says its wants providers to offer consumers a ‘default investment option’, to support those “struggling to make a choice.”

The watchdog says that providers can continue to offer wider options for more engaged consumers but under the new rules pension savers will be warned about the risk of inflation eroding the value of “significant and sustained levels” of cash holdings.

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Firms will have 12 months overall to implement the new rules but the FCA says that given the current historically level of inflation (CPI rose to 11.1% in October), it is encouraging providers to send cash warnings now.

Pensions expert Andrew Tully, technical director, Canada Life, welcomed the move.

He said: “People need advice, failing that to be led down a path suitable to their individual needs, taking into account many will phase into retirement, use drawdown, or withdraw funds as lump sums.”

Separately, the FCA has also published a consultation on standards for operators of Pension Dashboards.

Pension dashboards (CP22/25) will provide consumers with access to a online hub containing information about all of their pension savings. In the new consultation, the FCA sets out its plans for supervision and enforcement for dashboard operators, including on fees, regulatory reporting, record keeping, prudential requirements and conduct rules.

Under the proposals, dashboard operators will be able to offer savers additional services that “improve engagement” with pensions provided they meet rigorous conduct standards. These could include investment advice (including robo-advice) or guidance, as well as provide models, calculators and other similar tools, the FCA says.

Sarah Pritchard, the FCA’s executive director for markets, said: “Pensions Dashboards will give savers better access to their data, helping them make better decisions for their retirement. Our proposals will encourage innovation while ensuring that we have the right rules in place to protect consumers.”

The FCA says the new pensions rules are part of its steps to make sure savers can access value for money pension products and are supported in their decision-making as they build and access their savings pots.

Consultation documents:

1. CP22/25: Proposed regulatory framework for pensions dashboard service firms.
2. PS22/15: Improving outcomes in non-workplace pensions.

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