The pension industry has broadly welcomed FCA proposals to introduce ‘targeted support’ as part of its wider review of the advice/ guidance boundary.
A consultation on these proposals closed this week. But while feedback was largely supportive of the direction of travel, there have been calls for further clarity about key elements of these proposals – in particular setting out whether firms need to look at an individual’s wider pension savings before offering ready-made solutions. There were also calls for clarity from the Financial Ombudsman Service about how it will distinguish between advice recommendations and action taken as a result of targeted support.
The Society of Pension Professionals (SPP) said targeted support, with schemes offering ready-made solutions at retirement, had the potential to reduce consumer harm, provided there is widespread take-up among FCA-regulated firms, and the framework accommodates trustees of occupational pension schemes providing equivalent support.
But the SPP have called for greater clarity, noting “this does not give any indication as to whether, as part of a targeted support service, a firm is expected to take into account other pension arrangements from other providers when judging if a better outcome could be achieved or whether the customer would be expected to go through multiple targeted support processes for each product.”
The SPP adds that it does not think this initiative can succeed without firms having access to members’ wider pensions savings information as a minimum, stating, “…we believe it would be a retrograde step for providers to deal exclusively with the pension benefits that relate solely to them.”
The FCA has proposed that this could be a free service. But in relation to fees and charges the SPP says: “…ultimately it will be up to firms to decide whether they are able to offer a targeted support service to customers free of charge or to charge an appropriate fee.”
It adds: “Much would depend on the final regulatory framework that is introduced, but large product providers are likely to seek to recover the costs of providing a targeted support service through some form of cross subsidisation.”
The SPP also highlights member concerns around risk. Their consultation response states: “Decisions concerning investments and life-changing sums of money can involve uncertain outcomes and unintended consequences (such as tax, or loss of investment returns), even where appropriate support has been provided. Consumers may also experience regret risk in relation to their decisions. Providers will need clarity concerning how responsibility for complex decisions will be allocated between providers and consumers if they decide to offer targeted support.”
The SPP then warns that if, “…firms believe they are unable to put adequate controls in place to manage these risks, they may seek to mitigate their exposure by limiting their role to the minimum required (which will not involve providing targeted support).”
Many pension providers welcomed this move as being a necessary step to help improve customer outcomes at retirement. Royal London director of policy Jamie Jenkins says: “As the FCA’s consultation on the Advice Guidance Boundary Review closes, there is much to cheer about the work underway to introduce Targeted Support.
“Targeted Support isn’t advice, nor is it intended to compete with the services of an adviser. If anything, it should complement the need for advice, perhaps as part of a continuum of people’s engagement as they build their financial resilience.
“It should be free at the point of access, and centred around providing constructive help, rather than the current approach of simply warning people about the consequences of all the poor decisions they could make. It should help people make good decisions and its success should be measured on the value it provides in doing so.
“Any firm planning to measure the success of Targeted Support on the volume of product sales has missed the point, and perhaps misunderstood the essence of the Consumer Duty.”
Aegon pensions director Steven Cameron added that this change to the rules offered a huge opportunity for the industry. “After years of an ever-growing advice gap, it’s vital that the FCA’s proposals around targeted support achieve their full potential.
“While targeted support will never replace the value of full financial advice with personal recommendations, there are millions of non-advised individuals who could benefit from a suggested way forward, appropriate for people who share common characteristics with them. Many who would benefit from this service may go on in future to seek full financial advice.
“With the Government’s review of pension adequacy on hold, targeted support could offer pointers to millions of auto-enrolees who have no real insight into how much they should be saving for the retirement lifestyle they aspire to.
“With pension freedoms approaching their 10th anniversary, those approaching retirement without advice – including many auto-enrolees – could receive some much-needed help navigating their retirement options. And with pension dashboards on the horizon and a Government focussed on scheme consolidation, it’s also vital those without advice can make sensible decisions around pension consolidation.”
Cameron added that the industry was keen that the FCA retains “as much flexibility in regulations” as possible. This will allow the industry to innovate and to meet changing consumer support needs he said.
“We’re continuing to call on the FCA to allow adviser firms and not just pension and investment providers to apply for the necessary regulatory permissions, with fast-track approval for existing regulated firms.
“Within an outcomes-based approach, we’d welcome the FCA offering examples to illustrate the potential scope. This could set out possible scenarios, customer segments and ready-made solutions to encourage the industry to come up with innovative services.”
Cameron also added that it was “essential” that the Financial Ombudsman Service (FOS) offers concrete assurances over how it will differentiate between its expectations for full advice and for the less personalised suggestions from targeted support.
“The FCA has recognised that currently, the Privacy and Electronic Communications Regulations (PECR) rules may act as a barrier to firms being able to proactively offer targeted support. We believe there is justification for exempting firms with certain FCA regulated permissions from the scope of PECR.”
The SPP’s chair of its financial services regulation committee Amanda Cooke added: “There are some sensible and welcome proposals being put forward by the FCA to deal with ongoing issues relating to the advice/guidance boundary in relation to pensions.
“However, as is often the case, the devil really is in the detail. It’s important for industry and consumers that the FCA gets this right, especially in the context of other current workstreams focussed on retirement planning. We trust that our response will play a part in helping to improve these proposals if and when they are implemented.”