The Financial Conduct Authority (FCA) has been urged to rename additional communications for customers holding significant amounts of cash from warnings to alerts, in an effort to provide balanced member communications.

The FCA recently launched a consultation on plans to require non-workplace pension providers to warn customers holding high levels of cash that they are at risk of having their savings eroded by inflation, and prompt them to consider investing in other assets.

However, whilst Aegon supported the requirement for additional communications, it argued that these should not only set out the risks of holding cash for sustained periods, but also when some cash holding might be appropriate within pensions.

It also suggested that these should be labelled as 'alerts' rather than warnings, in light of concerns that a warning could prompt savers to take action or change investments without taking the appropriate advice.

Aegon pensions director, Steven Cameron, commented: “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 per cent 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."

In addition to this, Aegon argued that FCA's proposals to allow providers to defer cash warnings if they judged it to be the wrong time were unworkable, as Cameron warned that 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," he explained.

"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.”

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