The wording for the cash warning, which usually has to be given within three months of the assessment, will show how inflation can erode savings over a ten-year period.
If the customer receives a warning then providers do not have to send another warning for a year, although, of course, some providers may continue to send warnings for every three-month assessment where the customer continues to meet all the conditions.
A provider, though, does not have to always send out a warning immediately.
They may decide that a warning is not appropriate at a given time because of the current market conditions, for example turbulence in the market meaning more people have retreated to investing in cash.
In this case there would be leeway for the provider to extend so they sent the warning six months after the assessment.
This initiative is copying one introduced for drawdown customers in February 2021. There are however a few key differences. Providers have to monitor cash investments on an ongoing basis, rather than at only one time, when the customer enters drawdown.
And there is no need for the customer to return an ‘active decision’ where they tick a box to say they are comfortable remaining invested in cash.
Exemptions to the cash warnings
Cash warnings have to be sent to both advised and non-advised customers.
But they do not have to be sent to customers who have appointed an investment manager for their contributions to, or assets in, a non-workplace pension.
A customer could have only part of their pension fund held with an investment manager and be in control of the investment strategy themselves for the remaining funds.
In these circumstances, the regulations do not appear to compel the provider to test the remaining assets, although some providers will choose to do so.
How will it affect advisers working with their clients?
Advisers will find their clients holding a sizeable cash investment will receive warnings direct from the provider.
Of course, there are various good reasons why a client may remain invested in cash over a six-month period, and these would have been explored and discussed between advisers and their clients when deciding upon the investment strategy.
So, in the cases where a cash warning will have to be sent out, advisers may want to discuss the warnings with the client before they are received.
Consumer duty
These new rules will hopefully help achieve the FCA’s aims to improve outcomes for personal pension customers.
However, the other big implementation event of 2023 – the consumer duty – will be an overriding presence.
