The pensions sector, along with much of retail financial services, is being urged to embrace targeted support.
It has been created to address at least part of the advice and guidance gap identified by regulators, allowing authorised firms to provide support to similar groups of people and directing them to certain actions, without the full information required by an individual advice fact find.
Along with various investment cases, last year’s FCA consultation paper suggested four typical pension use cases: helping consumers choose an accumulation rate to achieve
the lifestyle they want in retirement, helping consumers in a default fund consider switching to a fund that better matches their preferences and goals, helping consumers make the right decisions when they first access their pension, and helping consumers in retirement choose a decumulation rate which will provide a comfortable and sustainable income.
There are now 13 firms confirmed as authorised following a freedom of information request. Clearly not all workplace pension providers have applied, but several have done so.
Arguably, L&G has given most details in relation to solving a specific pension challenge.
Paula Llewellyn, CEO of DC and Workplace Savings at L&G says: “The industry has spent a long time discussing the potential of targeted support. The conversation is now moving beyond implementation and towards impact. Over the past few years, we’ve built a much clearer picture of what helps people engage with their pensions and take the next step.
“L&G is among the first providers to secure FCA approval, and our first live use case focuses on members whose workplace pension savings are fully invested in cash. Left unchecked, that can have a significant impact on long-term retirement outcomes.”
Llewellyn also claims that targeted support enables L&G to highlight risk and provide support that is more relevant to an individual’s circumstances, while ensuring the decision remains theirs. Pre-launch testing of communications for the firm’s cash investment scenario showed strong engagement, with 85 per cent of people wanting to read the communications (versus a 67 per cent industry average), 95 per cent finding them easy to understand (versus 79 per cent) and 93 per cent clear on the next step (versus 81 per cent).
Aviva’s initial statements also mentioned pensions, but the firm has now confirmed that the plans are likely to involve workplace at some point in the future.
Sam Mirehouse, head of digital advice at Aviva, says: “Pensions are an important area for targeted support, and, over time, we expect workplace contract-based pension schemes to form part of our targeted support journeys. Our initial focus is on supporting retail consumers, allowing us to build and evolve our approach in a way that delivers good customer outcomes. As we look to broaden this into workplace pensions, we recognise the important role that employers, advisers, trustees, and governance bodies play in helping members make informed decisions.
“We’ll continue to work closely with schemes and key stakeholders as the framework develops, ensuring that any messaging is appropriate, clear, and aligned with the wider support already available to members. It’s important that targeted support complements existing guidance and advice models, helping create a joined-up experience for customers.”
Royal London has launched a targeted support Isa service, but what about pensions?
Royal London’s CEO of advice Ben Hampton says: “We’re ambitious about the role targeted support can play in pensions, retirement and workplace schemes. Royal London was the first business to receive regulatory permissions for targeted support and the first to launch a service, and we see clear, practical applications for it in helping people make better retirement decisions.
“We’re continuing our PASS discussions with the FCA to progress an application for pensions permissions. We’re confident we can build on our live targeted support Isa service and our retirement planning digital experience to support a successful pension application.”
Corporate advisers are now considering how they will relate to these new services and indeed communicate with trustees and employers about them. They remain supportive but with some caveats.
Kelly Parsons, head of DC proposition at Broadstone, says: “Targeted support should be seen as a pathway into ‘better’ financial planning, rather than an alternative to it. Done correctly, and early enough, it has the potential to bridge the widening gap between workplace benefits and regulated financial advice, improve employee engagement and, ultimately, lead to better financial planning outcomes.
“That said, financial advice is about the whole picture. Targeted support should account for this in both its process and its outcomes, ensuring that any recommendations are made in the context of an individual’s wider financial circumstances rather than a single financial decision.”
Kathryn Fleming, head of DC consulting at Hymans Robertson, says: “The industry has long recognised that many savers struggle with some of the most important decisions affecting their retirement outcomes. Whether it’s understanding how much to save during their working lives or how to access their pension in retirement, many people are left facing complex choices without the support they need.
“That’s why targeted support is such an important development. It creates an opportunity to provide people with clearer, more relevant suggestions at key decision points, helping them act with greater confidence while remaining distinct from full regulated financial advice.
“Providers are likely to be at the forefront of delivering targeted support, using member data and insights to identify common needs and provide timely interventions. Trustees will have an equally important role in ensuring members receive appropriate support throughout both the accumulation and retirement journey, and in assessing how targeted support complements their wider engagement and retirement strategies.”
Many of those quoted believe that targeted support will involve some use of AI and regulators are increasingly alive to this possibility.
What is intriguing is that regulators after a period of near silence on AI technology, have started talking about it at length. The Pensions Regulator moved first, clarifying that expectations about responsible AI and governance with fuller guidance to come later in the year.
Along with the use cases above, the FCA consultation paper says: “We want to make sure that any rule set we develop for the new proposition of targeted support is future-proof and does not act as a barrier to the use of safe and responsible AI.” With regulators already asking the AI question, what do providers and advisers think?
Mirehouse says: “AI has the potential to help in many areas of pension provision. Aviva is not currently using AI in the delivery of its targeted support. That said, there is a significant end-to-end process in the delivery of targeted support, in line with the FCA’s regulations. It is possible that AI could be used to support part of this process as it could be used in many other areas of life. If it was to be used, its use would carry
the same requirement to satisfy FCA regulations.”
Llewellyn agrees that technology isn’t new to the pensions journey. She says: “L&G has spent years using data, behavioural insight and digital tools to make pensions more engaging and help members take action with greater confidence. Targeted support allows us to build on those capabilities and provide more relevant support at the moments that matter most.”
Llewellyn also explains that the framework itself is technology neutral. She claims that for L&G, whether firms use AI or other technologies, what matters is that it is used responsibly, supported by strong governance, effective oversight and clear controls, with members’ interests and better outcomes at its core.
Parsons adds: “The regulatory challenge is not whether targeted support uses AI, but whether firms can demonstrate that any ready-made suggestions AI produces are fair, explainable, deliver good consumer outcomes and remain firmly on the correct side of the advice boundary.
“Firms and regulators will need to consider how they can ensure people do not mistake targeted support for regulated financial advice and are clear about what it can, and cannot, provide.
“Finally, robust AI guardrails will be essential. Firms need confidence in where AI is sourcing its information from, how that information is kept up to date and how they can ensure recommendations remain accurate and appropriate.”
Fleming adds: “AI has the potential to be a powerful enabler of targeted support. By helping schemes and providers analyse data more effectively, it can identify groups of savers who may be under-saving, approaching retirement without a clear plan, or at risk of poor retirement outcomes.
“This makes it possible to deliver more relevant communications, and recommendations at scale. Ultimately, the real opportunity is to combine data, technology and human oversight to provide support that is timely, accessible and actionable, helping more people make better decisions throughout their pensions journey.”
Finally, the pension industry should also note comments in a report by outgoing FCA executive director Sheldon Mills, recommending an FCA review of large language models, but also commenting on the impact of AI on targeted support.
It says: “We stress the need to monitor the advice guidance boundary in future […] if AI increases in capability and risks of error are reduced, to rethink whether or not targeted support can be adjusted to better enable firms to use AI on a more individualised basis.
“This would have benefits for tackling the advice gap and unlocking the economic benefit of millions of more informed financial decisions being made by UK citizens, while noting that at higher levels of autonomy the risk of regulatory arbitrage may increase where activity no longer aligns with the existing boundary.”