The Financial Conduct Authority has confirmed rules requiring all pension providers to offer ‘investment pathways’ will be delayed until February 2021 due to Covid-19.
Under investment pathways proposals, firms will be required to nudge customers towards investment solutions tailored to four broad retirement income behaviours.
The regulator’s central reason for developing investment pathways was because of concerns over people holding too much cash. The delay gives the FCA and industry an opportunity to fundamentally reconsider reforms.
Tom Selby, senior analyst at AJ Bell, comments: “We are pleased the FCA is taking a pragmatic approach to investment pathways. Ploughing ahead with such a fundamental change at a time when all sectors are battling the unique challenge posed by the Coronavirus pandemic would have been a mistake and risked creating poor consumer outcomes.
“Rather than simply delaying investment pathways, the regulator should take this opportunity to fundamentally rethink the reforms. If investment pathways had been in place before the recent market sell-off, thousands of drawdown investors would have been exposed to significant losses with little understanding of why they were nudged in a particular direction.
“While investing in cash for the long-term clearly carries significant risk – namely where inflation eats away at your fund’s real value – there are perfectly logical reasons to hold a decent chunk of cash in your portfolio at any given time.
“Recent events have also reminded all of us that bull markets do not last forever, and when they end they can be painful for investors.
“Furthermore, the recent market volatility emphasises that individuals cannot be protected from all risks in drawdown. In attempting to create a ‘safe’ drawdown path for consumers, the regulator risks hard-wiring disengagement and encouraging people to invest in a way which might not be in their best interests.”