Recent market volatility caused by coronavirus has highlighted shortcomings in The Financial Conduct Authority’s (FCA) Retirement Outcomes Review (ROR), according to Barnett Waddingham.

The review’s investment pathways proposal was intended to deal with the issue of retirees entering drawdown and defaulting into cash investments.

Barnet Waddingham self-invested technical specialist, James Jones-Tinsley, said the review had “primarily focused on those individuals going into drawdown without seeking financial advice”, adding that it had “bemoaned the fact that a third of these were 100 per cent invested in cash and/or cash-like assets”.

He warned: “How effective would their solution of default investment pathways for these individuals have been, in terms of protecting them against the current levels of extreme market volatility? And doesn’t 100 per cent invested in cash sound exactly like the place where most investors wished they had been - before the market sell-off began?"

The FCA moved to introduce retirement pathways to help consumers who enter drawdown to make investment decisions that meet their needs in retirement in in its final policy statement from the review in July 2019.

The review proposed that drawdown providers give consumers entering a drawdown product, that haven’t been advised, four options for how to use their pot.

Drawdown providers would also be required to ensure non-advised customers only invest wholly or predominantly in cash if they had taken an active decision to do so, while also giving warnings to consumers that decide to invest in cash, or those that have already done so.

“Instead of imposing their ‘one size fits all’ pathway solutions on all pension providers, regardless of the type of pension wrapper involved, perhaps the most obvious solution for the most vulnerable types of drawdown client - and yet eerily absent from the ROR – is for them not to go into drawdown without firstly seeking regulated financial advice,” concluded Jones-Tinsley.

Share Story: