The FCA has confirmed the delay to the implementation of post-retirement investment pathways that could have nudged investors now in secure cash investments into equities and other risky assets.
In January the FCA was proposing that consumers’ pension investments should not be defaulted into cash savings unless the customer actively chooses this option.
Stock markets have fallen around 30 per cent since the beginning of the year and investors now in cash who could have been defaulted into more risky investments would have suffered significant losses. The dilemma highlights the challenge of constructing effective customer journeys for complex products where financial advice is not being taken.
The FCA is also postponing changes to investment transfer rules.
Policy Statement PS19/21 introduced Investment pathways as part of the Retirement Outcomes Review, while Policy Statement 19/29 for Making Transfers Simpler was a result of the Investment Platforms Market Study.
AJ Bell senior analyst Tom Selby says:“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.
Hymans Robertson head of strategic digital solutions Paul Waters says: “The FCA’s decision to delay the deadline for the introduction of Investment Pathways by six months is sensible given that many providers are adjusting to, and dealing with, many new issues due to the disruption from Covid-19. It will be far better for consumer if the launch is at time that enables providers to put in place strong systems and products as they offer the pathways. Otherwise, there will be a rush to meet the deadline and they will simply deliver a very basic product to ensure compliance. The delay will give providers time to really strengthen the investment proposition that sits behind each pathway. It will also give them the breathing space to set up a robust digital user experience with clear features to help their customers understand the approach they are taking and what it means to them. There is still considerable work to be done to ensure both of these element. Six months is a modest extension of time and will ensure providers can set up efficient and easy ways for customers to engage with by the new deadline.”
Hargreaves Lansdown head of policy Tom McPhail says: “These are important initiatives, designed to protect consumers, promote competition and to ensure firms are looking after customers’ best interests. Given the unique circumstances we all find ourselves in now, and the importance of maintaining good customer services, we are sympathetic to the FCA’s decision to press pause until the present Covid-19 related crisis has passed.”