Regulator proposes default investment option for DIY pension savers

A new “default” investment option to help DIY pension savers build bigger retirement pots has been proposed by the Financial Conduct Authority (FCA).

At present, those who are not saving into a workplace pension, but making their own individual arrangements, have to choose investments from an increasingly wide range of options, the regulator stated.

Its proposed changes would give people who have not taken financial advice the option of a “standardised” investment strategy and reduce the risk of their retirement income being eroded by inflation.

The non-workplace pension market currently has around 13 million accounts and accumulated savings of around £470bn.

Such schemes are used by self-employed people without access to a workplace pension, as well as by customers wanting to supplement their workplace pension savings, or consolidate existing pension pots.

Under the proposals, the default option would need to take account of climate change and other environmental and social risks, while investments would also need to be “appropriately diversified”.

Non-workplace pension providers would also need to warn customers holding high levels of cash and prompt them to consider investing in other assets with the potential for growth.

The proposals have been made at a time when the Consumer Prices Index (CPI) rate of inflation is running at a near-decade high, eroding the value of many people’s savings as living costs such as energy, fuel and food increase. It is thought inflation could potentially peak at 5% next spring.

Sarah Pritchard, executive director for markets at the FCA, 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 of our wider work on pensions, which is designed to ensure that customers are better supported throughout their pension journey.”

The FCA is inviting responses to its consultation by 18 February.

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