What are cash warnings for pensions?

Under the Improving Outcomes in Non-Workplace Pensions regulation , platforms are now required to issue cash warnings to clients who hold a significant amount of cash in their pension savings accounts for an extended period. This initiative aims to raise awareness about the detrimental effects of inflation on long-term savings . Traditionally, regulators have cautioned against clients being exposed to excessive risks, especially if they don't understand them. Here are a few key points to note:

Cash assessments: These are conducted quarterly on each client's pension savings account. For a cash warning to be issued, the following criteria must be met:

1. 25% or more of pension savings is in cash funds.
2. The amount of cash or cash-like funds is equal to or greater than ￡1,000.
3. The customer is under 52 years of age.

Cash warning letters: Clients meeting the above thresholds for three consecutive cash assessments should receive a cash warning letter from their product providers starting from early August.

Enhancements to the pension summary report: To help clients stay informed, the Pension Summary report will be updated. It now provides early warnings for any client approaching the thresholds by highlighting when a client has reached the threshold twice.

Pension providers are required to inform clients that it is a generic warning and not a substitute for professional financial advice and that the value of investments can fall as well as rise. It is also required to explain to and/or illustrate?that different types of?different types of investment ?have a different balance of risk to potential gain.

Why this matters

Keeping a significant portion of your pension in cash can erode its value over time due to inflation . It's crucial to ensure your investments are working towards your long-term financial goals . This is something that your financial adviser should be working with you on. These changes will really benefit consumers who perhaps aren't yet working with a financial adviser. Research published by the Financial Conduct Authority in 2021 indicated that 8.6 million Brits held cash savings of over ￡10,000 and risked having the value eroded by inflation. So this is a widespread concern for DIY investors in particular.

Regularly reviewing and adjusting your pension investments can lead to better outcomes. Diversifying your portfolio and seeking professional financial advice can make a significant difference. For DIY investors , you can utilise the enhanced Pension Summary report to stay on top of your financial planning. If you receive a cash warning, consider it a prompt to review your investment strategy. The warning will include a generic example of how inflation erosion would affect a ￡10,000 cash pot over 10 years, assuming 0% interest.

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Contact Us: If you have any questions or need personalised advice on managing your pension, our team of financial experts is here to help . When you are ready, reach out to us if you want to ensure your savings are working as hard as you are.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Approver Quilter Financial Limited: 9th August 2024