FCA speaks on investment culture and pensions savings

Nikhil Rathi has spoken on how to build a healthier investment culture in a world where consumers need more from their pensions but significant immediate investment is not possible. He focussed on the need for integration between different financial products, and making the right connections. The FCA is aware that very few consumers seek regulated advice, and many lack confidence in making their own decisions. As a result, many keep too much cash in low interest accounts whose value erodes over time, and others risk unregulated high risk investments.

With pensions, greater numbers of pensioners will be relying on a defined contribution pot, but over half may be undersaving.

As a result, the FCA wants the Advice Guidance Boundary review to trigger an “advice revolution”. Soon, it will consult on its planned new targeted support model which is wants to fill the gap between generic factual advice and regulated advice for pensions and investments. It has picked 12 firms, and given them a month to design, build and test the consumer facing element of a cash to equity Targeted Support journey.  It is conscious of the risks that Targeted Support could be viewed as personalised advice and is taking steps to ensure that does not happen.

He then moved on to talk about risk in pensions moving into private markets and how the UK can do more to design policy and regulation that reflects a life journey rather than an isolated point, and said the mortgage regulation simplification project is an example of this. He discussed how positive pension saving behaviour could be integrated into mortgage and credit affordability assessments, and whether the UK might adopted a model used in several other jurisdictions, including the US, Australia, New Zealand, Singapore and South Africa, which allow consumers to leverage their pension savings to buy their first home – which could address the current significant UK issue of inability of first time buyers to raise deposits. But of course consumers would need to replenish those funds.

Another tricky issue is later life borrowing, and the FCA is keen to look at how that could in fact benefit some consumers rather than being used as a last resort.