FCA proposes ‘targeted support’ for vulnerable pension savers

The regulator last night published an update to its ongoing Advice Guidance Boundary Review, which is studying how to draw the line between regulated financial advice and unregulated guidance. 

The FCA’s own research has found that just 9% of UK adults took full financial advice over the past 12 months. Three quarters of people aged over 45 and saving into a defined contribution (DC) pension scheme do not have a clear plan for how to take money from their pension. Some don’t realise they have to make a choice. 

Sarah Pritchard, executive director of consumers, competition and international at the FCA, said: “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.” 

Targeted support, as proposed by the FCA, would allow contract-based DC pension providers to offer support to savers in certain scenarios. The regulator gave examples such as people who are at risk of running out of money through drawing down from their pension pot, or those “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 regulator said. It also suggested that targeted support is provided free of charge. 

The FCA said the proposals were “a significant moment as the reform to the regulatory framework will set the standards for years ahead”.  

Rob Yuille, head of long-term savings policy at the Association of British Insurers, said: “We know how confusing navigating the financial world can be for consumers, and appropriate support is vital. 

“Recent research we conducted on pensions withdrawals shows that guidance personalised to the consumer can improve decision making considerably. That’s why we’re very pleased to see the FCA set out its proposals for more support, and look forward to responding to its consultation.” 

A ‘revolutionary’ change

Steven Cameron, pensions director at Aegon, said: “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.” 

He added: “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.” 

Stephen Lowe, group communications director at Just Group, said the Advice Guidance Boundary Review was a “once-in-a-decade opportunity and it’s critical everyone across the industry gets behind this theme for the benefit of savers”. 

Lowe added that regulators should also seek to promote wider adoption of Pension Wise, the government’s free retirement guidance service, so that it becomes “a natural step before first accessing pension cash”. 

“As we approach a tipping point, with the first generation of entirely defined contribution pension savers nearing retirement age, the stakes are higher than ever.” - Rachael Griffin, Quilter

Brian Byrnes, head of personal finance at Moneybox, said targeted support could “revolutionise pension planning” and called for support to be extended throughout the savings cycle.  

“While it’s crucial to support those approaching retirement in accessing their pensions, we must also focus on supporting savers earlier in life to ensure they have a decent pension pot to drawdown from when the time comes,” he said. 

Rachael Griffin, financial planning expert at Quilter, supported pension providers being “better empowered” to assist certain vulnerable groups of pension savers. 

“As we approach a tipping point, with the first generation of entirely defined contribution pension savers nearing retirement age, the stakes are higher than ever,” she said.  

“This cohort faces significant risks, as poor decisions could have a lasting negative impact on their financial wellbeing in later life. Targeted support is not a magic fix and cannot replace the need for broader financial literacy and planning, but it could serve as a crucial building block. 

“By fostering greater engagement and offering clearer options, it can help savers make better decisions, reducing risks and improving outcomes.” 

Regulatory approach praised

Ben Hampton, chief executive officer at technology firm Wealth Wizards, said: “The desire to support a more dynamic approach to policy development, testing emerging rules, is genuinely innovative, bringing a modern mindset to ironing out the practical puzzles of rule development. 

“An agile approach, testing directly with consumers early, is common practice for many firms. The industry should see this as a real opportunity for us to engage to get better outcomes for all. With draft rules now due before the end of June 2025, the starting gun on industry transformation has been fired.”

Paul Kitson, EY’s UK head of pension consulting, welcomed the FCA’s “principles-based” approach to regulation of targeted support. 

He said: “Targeted support segments pension savers into groups with common characteristics, leading to more cost effective and focused advice to saving decisions. While this should lead to better decision-making for the majority, it will be essential to monitor for incorrect segmenting, especially for more complex savers. It will be important for the industry to work closely with regulators to determine how to get this balance right and ensure savers are segmented correctly.” 

Jamie Jenkins, director of policy at Royal London, described the proposals as “quite a radical departure from previous attempts to reduce the advice gap”, and urged the industry to “make it a success as future generations start to accumulate significant pension savings as a result of automatic enrolment”. 

The FCA has also asked for feedback on what regulatory changes might be needed to improve support to pension savers through digital tools and the consolidation of pension pots, as well as for those saving into self-invested personal pensions.