FCA sets out targeted support proposals to provide extra support for pension savers

The Financial Conduct Authority (FCA) has set out targeted support proposals to provide extra support for millions of UK savers to help them make better decisions about their pensions.

This is part of the wider review of the advice guidance boundary on investments, which is underway “to help make sure consumers are better supported”.

The FCA said: “Making sure consumers can make informed investment decisions is an important part of ensuring healthy capital markets which deliver growth.”

The regulator aims to help people have access to more help, guidance and advice across all aspects of their financial lives.

Over 16 million people in the UK are saving for their retirement into defined contribution pension schemes.

However, according to the FCA’s Financial Lives 2024 survey, 75% of those aged over 45 do not have a clear plan for how to take money from their pension.

FCA research has also shown that pension engagement and understanding is low.

Additionally, the majority of consumers are “ill-equipped to manage complex pension decisions confidently” as only 9% of adults have taken regulated advice in the last 12 months.

The Ostrich effect also plays a part, as some people are disengaged because they fear knowing the reality of their pension pots and whether they will be sufficient in retirement.

The Ostrich effect is when people bury their heads in the sand and avoid potentially negative but useful information.

The city watchdog said the majority of people lack the support needed to make critical choices about their pensions.

The FCA said: “Some may struggle to make the right choice for them without help.”

Examples of existing guidance is provided for free through MoneyHelper.

The FCA explained one proposal is targeted support, which can be offered if they identify someone drawing down their pension unsustainably, or where a consumer is facing uncertainty about how to take a retirement income.

Firms would be able to provide a bespoke suggestion to specific groups of consumers who share the same characteristics. The FCA is suggesting that targeted support should be provided for free.

Cover story: FCA sets its sights on targeted support

Targeted support would allow firms to provide support to consumers in different scenarios.

The regulator will follow with further proposals on introducing concepts of targeted support and simplified advice for other retail investments next year.

It added: “This is a significant moment as the reform to the regulatory framework will set the standards for years ahead.”

As part of the review, the FCA is also developing proposals for targeted support in relation to investments, and plans to consult on draft rules across pensions and investments in 2025.

FCA executive director of consumers, competition and international Sarah Pritchard said: “We want people to have access to the help, guidance and advice that they need, at a cost they can afford, when they need it, so that they can make informed decisions. So, we are reviewing the boundary between guidance and advice across investments.

“We know people find pensions particularly difficult to understand, so we are deliberately starting with this to help consumers with their pension decisions.

“If we get this right, consumers will be better supported in making financial decisions. This will potentially lead to more people investing, which will help provide capital necessary to stimulate economic growth.”

Lang cat director of public affairs Tom McPhail added: “These proposals from the FCA are revolutionary in making a significant and meaningful change to how firms can communicate with customers and, as a result, could help reduce the Advice Gap which we recently identified as affecting 91% of the UK population. This is also apparent from their strong steer, although not an actual requirement, that targeted support should be free at the point of use. We have to be careful here not to create a new market that only the largest firms are able to operate in but I’m sure the FCA with their competition objective will be fully aware of this risk.

“There is also a risk with the proposals, which the FCA appears comfortable with, that in allowing firms to use language with customers such as ‘we suggest a particular product solution, based on this being appropriate for people in similar circumstances to you’ could result in customers believing they have received advice when they have not.

“So we welcome these proposals and the FCA’s boldness is trying to help savers achieve better financial outcomes, however the solution is by no means risk free; effective customer communication and disclosures will be essential to mitigate this risk.”

Aegon pensions director Steven Cameron added: “The FCA’s latest consultation on targeted support reforms for pensions is the most exciting chapter yet in the long-running Advice Guidance Boundary Review saga.

“While there’s much detail to thrash out, targeted support could herald a ‘new dawn’, bringing huge benefit to the millions of auto-enrolees who regrettably won’t consider advice but who are crying out for help.

“Many auto-enrolees share what the FCA calls ‘common characteristics’ of not paying sufficient contributions to deliver an adequate retirement income. Others will never have considered investment options outside their default fund.

“The potential benefits are arguably even greater when it comes to making decisions around when and how to take a retirement income. Here, giving the consumer more confidence to make well-informed decisions with an understanding of the risks has to be a good thing.

“We’re pleased to see the FCA structuring its proposals primarily around the outcomes-based Consumer Duty, proposing further rules or guidance only where required to offer firms clarity or to ensure consumer protection.

“There’s major scope for firms to consider under which scenarios targeted support could offer ‘ready-made solutions’ to drive better outcomes, for identified customer segments, defined with appropriate granularity.

“It’s critical that consumers are made fully aware that targeted support will not deliver the value add of holistic financial advice, or offer a personal recommendation. But as well as being open to manufacturers, we strongly believe adviser firms should be given the option to design their own targeted support solutions alongside holistic advice should they identify a customer benefit.”

The FCA encourages feedback from all stakeholders about the proposals, and views are sought by mid-February 2025.

The FCA also is seeking views on whether there are other specific areas of its regulatory framework that may need to change to enable firms to better support consumers.