Default Pension Funds for Non Advised Clients

Published / Last Updated on 25/11/2021

The Financial Conduct Authority (FCA) has today issued a consultation paper requiring pension companies to offer investors default pension fund choices if they are not taking advice on their private pensions.

Similar to ‘workplace’ pension schemes, private pension schemes such as personal pensions will be required to offer client default funds.

It is thought that this will help investors with limited experience build a balanced portfolio that has resilience when certain parts of the market are volatile.

The FCA has proposed that pension providers off a “diversified basket of investments” taking into account attitudes and requirements towards investing in climate change, environmentally friendly, socially responsible investment as well as risk associated with poor corporate governance within companies that the pension funds invest in.

We liken this to another stage in the ‘lifetstyle’ fund strategies that gradually and automatically switch clients at certain ages from higher risk/greater stock market exposed funds when younger to bond and cash based fund mixes as we approach our retirement age.

The hope is that an approach of offering default funds or portfolios should offer inexperienced clients a professional investment strategy with limited knowledge.

Clients and Firm Exemptions:

Firms will be exempt from offering a default fund if:

  • If client has an ‘advised’ pension i.e. a financial adviser is involved.
  • The client is transferring from an advised product to a non-advised product.
  • The client already pays an adviser a fee for ongoing advice on other investments.

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