Home Business NewsBusiness FCA unveils plans for non-workplace pensions ‘default’ funds

FCA unveils plans for non-workplace pensions ‘default’ funds

by LLB Reporter
26th Nov 21 11:13 am

Savers in non-workplace pensions will be offered automatic enrolment-style ‘default’ funds under plans revealed by the Financial Conduct Authority.

Default funds will need to be offered to customers at the point they open a product and when they make their first contribution. Unlike in auto-enrolment, non-workplace default fund charges will not be capped – although this will be reviewed.

Extra risk warnings will also need to be put in place for customers who hold more than 25% of their pension in cash for more than 6 months.

Tom Selby, head of retirement policy at AJ Bell, comments: “With inflation threatening to rampage through the economy, ensuring savers with a long-term time horizon invest their money sensibly is hugely important.

“While people who choose to invest in a non-workplace pension have by definition exhibited a level of engagement, there is a risk that some will either subsequently become disengaged or struggle to make good choices about where to invest their hard-earned retirement pot.

“In a worst-case scenario, they will end up shoving all their pension in cash and risk their money being eaten away by inflation.

“Having a default fund which is broadly suitable while also issuing warnings to those who invest in cash over long time periods could therefore help improve outcomes.

“Care will need to be taken in ensuring engaged customers who were planning to build a retirement portfolio based on their circumstances are not encouraged to instead simply go for the ‘easy option’ of investing everything in a single default fund that might be less appropriate.

“The FCA has taken a pragmatic approach to how the default fund should be offered to people, insisting only that it should be ‘prominent’ in communications, and allowed for flexibility in the design of such funds.

“This should help ensure the reforms are introduced in a way which can genuinely help savers.”

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