Currently, non-workplace pension customers have to choose their own investments from an increasingly wide range of options. This complexity can make it hard for some customers who do not take advice to choose investments that meet their retirement needs.

Under the proposals, the default option would need to be an appropriately diversified basket of investments and take account of climate change and other environmental, social and governance risks. As a customer approaches retirement, their investments would be changed to lessen the impact of any market downturn on their savings.

Under the proposals, non-workplace pension providers will also warn customers holding high levels of cash and prompt them to consider investing in other assets with the potential for growth. The aim is to ensure pension savers have as big a pension pot as possible at retirement.

The FCA invites responses to the Consultation Paper by 18 February 2022, when the consultation will close.

Sarah Pritchard, the FCA’s executive director for markets, said: “People spend decades working hard to build up a pension to support them in retirement, and we want their savings to work just as hard for them. These proposals will ensure that customers who don’t take financial advice can benefit from a professionally designed investment strategy, and reduce the risk of their retirement income being eroded by inflation.

“The proposals form part of our wider work on pensions which is designed to ensure that customers are better supported throughout their pension journey.”