FCA tells pension providers to green up investments

Personal pension providers will need to offer savers a default investment option to help people not taking financial advice build up enough funds to afford retirement under new rules launched by the City watchdog today.

A new personal pension regime, set out by the Financial Conduct Authority (FCA), recommends default personal pension options will need to take into account climate change and ESG risks.

The structure is designed to offer a blueprint for personal pension providers, who have a large proportion of customers that do not take up retirement planning guidance, to follow.

As savers near retirement, the portfolio of investments in the pension scheme modelled by the FCA would shift toward less risky assets to mitigate the damage of a market downturn on the saver.

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 would affect non-workplace pensions. 

Workplace pensions, which the vast majority of the UK population are enrolled on to, are shaped by trustees with decades of investment experience, meaning employees do not have much interaction with the structure of their scheme.

However, personal pensions are managed by individuals who are often faced with thousands of investment options.

“The aim is to ensure pension savers have as big a pension pot as possible at retirement,” the FCA said.