New rules to help over-55s make better pension decisions delayed

FCA pushes back plan due to coronavirus outbreak

Over-55s will have to wait another six months before rules come in designed to help prevent them making poor decisions about how to invest their pensions.

The Financial Conduct Authority (FCA) says it is delaying its investment pathways initiative by six months, until 1 February 2021, due to the coronavirus epidemic.

The initiative is designed to help over-55s who want to go into income drawdown without financial advice by requiring pension providers to offer a menu of four investment strategies that suit their needs.

As many as 100,000 over 55s go into income drawdown every year without seeking financial advice, according to the FCA.

Almost a third of those following this path between October 2015 and April 2017 had invested their retirement savings wholly in cash.

The FCA has previously expressed concerns that many consumers who do not seek advice 'sleepwalk' into income drawdown and hold their retirement savings in investments that do not meet their needs.

This means retirees may not be able to generate the level of income they need or find that they run out of money.

The four pathways outlined by the FCA are for:

• Those who do not plan to touch their money in the next five years
• Those who plan to buy guaranteed income with an annuity in the next five years
• Those planning to take long-term income from their pension within the next five years
• Those planning to cash in their whole pension within the next five years

Pension freedoms were introduced in April 2015 and allow anyone over the age of 55 to take some or all of their pension as a lump sum, with the first 25% paid tax free.

Rebecca O'Keeffe, head of investment at interactive investor (Moneywise’s parent company), says: “The individual pathways are designed to help investors choose the most appropriate investment objective for their own circumstances, but all providers will now be looking at the past few weeks and rethinking their definitions of what constitutes a reasonable and safe investment.

“Being actively engaged with your investments is of critical importance, particularly when markets are volatile. That doesn’t mean selling when the market has already fallen, but taking a step back and reviewing your portfolio to make sure that it remains fit for purpose for which it is intended.”

Tom Selby, senior analyst at AJ Bell, adds: “Ploughing ahead with such a fundamental change at a time when all sectors are battling the unique challenge posed by the coronavirus pandemic would have been a mistake and risked creating poor consumer outcomes.

“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.

“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.”