The Financial Conduct Authority wants pension providers, including SIPP firms, to offer a default investment option to non-workplace pension clients.

Workplace pension schemes already have to offer a default fund.

The FCA said mandating the offering of a default investment options would help non-workplace pension customers save for their retirement.

The regulator said that the complexity of choosing their own investments can make it hard for some DIY customers 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 need to be changed to lessen the impact of any market downturn on their savings.

Under the proposals, non-workplace pension providers will also have to warn customers holding high levels of cash and prompt them to consider investing in other assets with the potential for growth.

Sarah Pritchard, executive director for markets at the FCA, 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 our wider work on pensions which is designed to ensure that customers are better supported throughout their pension journey.”

The FCA consultation closes on 18 Febraury 2022 and can be found online on the FCA website.