Pension firms will be able to offer targeted support, offering products or bespoke suggestions to specific cohorts of consumers, under new proposals outlined by the Financial Conduct Authority.
These proposals are the first part of the regulator’s review into the boundary between advice and guidance.
‘Targeted support’ aims to bridge the gap between full financial advice and more generalised guidance. The regulator says this will initially be offered to pension customers as this is where it has identified the greatest need for more support around decision making.
The FCA said this was a significant reform to the regulatory framework, and is initially consulting on the general policy direction. It is aiming to publish more detailed rules for further consultation next year.
Targeted support would allow firms to provide addition help to consumer in difference scenarios: for example those taking unsustainable sums from their pension, or where a consumer is unsure of how to take their retirement income.
The FCA said firms would be able to provide bespoke suggestions to groups of consumer who share the same characteristics. The FCA is suggesting that targeted support is provided for free.
The FCA said it was not aiming to provide a prescriptive set of rules, but wants to encourage innovation in this area. As a result pension firms would be free to identify specific cohorts of their customer base and design appropriate support solutions or products for them. It is understood that there is widespread support form the pensions industry for this approach.
Although all proposals are subject to consultation, the FCA said it expected targeted support to be subject to FOS and FSCS oversight to ensure trust from consumers, but said it was important that there was also demand from providers to offer this service, and that it was commercially viable.
The FCA said it hoped that this change would deliver better outcomes for many pension savers. It pointed out that there are now 16m people saving into DC schemes. However its research showed that 75 per cent of consumers aged over 45 did not have a clear plan for how to take money from their pension, or didn’t know they had to make a choice on taking these pension benefits.
The FCA stressed that engagement with pensions remains low, with the vast majority of consumer ill-equipped to manage complex pension decisions confidently. It says that in the last 12 months only 9 per cent of adults have taken fully regulated advice.
FCA executive director of consumers, competition and international Sarah Pritchard says: “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.”
Feedback from stakeholders about the proposals and views are sought by mid-February 2025.
Through a separate discussion paper the FCA is seeking views on whether further changes might be needed to better support consumers such as the use of digital tools, consolidation of pension pots and the rules around Self-Invested Personal Pensions (Sipps).
The FCA said it will follow up this consultation with further proposals on introducing concepts of targeted support and simplified advice for other retail investments next year.