In its response to the FCA’s consultation on improving outcomes in non-workplace pensions*, which closes 18 February, Aegon has supported additional communications with customers holding significant amounts in cash. But it has raised concerns over these being labelled as ‘warnings’ and believes they should instead be ‘alerts’ setting out not just the risks of holding cash for sustained periods, but also when some cash holding might be appropriate within pensions. Aegon has also said the FCA’s proposals to allow providers to defer cash warnings if they judged it ‘the wrong time’ are unworkable.
Steven Cameron (pictured), Pensions Director at Aegon said:
“At a time of sharply rising inflation, it’s almost inevitable that holding cash over any longer time-period will lead to a loss of value in real terms. We support the FCA’s plans for firms to issue additional communications to customers who have more than 25% of their funds in cash for 6 months or more.
“However, we believe these should be described as ‘alerts’ rather than warnings, setting out the risks of holding significant cash but balanced with an explanation of when cash holdings may serve a purpose and also that investing isn’t risk free.
“At times of heightened market volatility, there’s a risk that a ‘warning’ prompts customers, particularly those without access to advice, to move from cash into investments just before a market fall. While it’s to be hoped any such losses will be short term, the pros and cons need to be set out in a balanced way.
“While the FCA has suggested that firms might be given the flexibility to defer communications if they believe it is ‘the wrong time’ to issue a warning, we don’t see this as workable. It’s nigh on impossible to know where markets will move next and determine what is the ‘wrong time’. Deferring a communication for 3 months might benefit some customers if they then didn’t move out of cash before a market fall. But if markets actually rose, deferring investing could mean some customers lose out, leaving providers open to being judged with the benefit of hindsight.
“For the majority of pension savers, holding significant amounts in cash for any longer period is very unlikely to give the best customer outcome. But communications alerting them to this must be balanced.”