New proposals from the Financial Conduct Authority (FCA), aimed at improving pension decision-making for millions of UK savers, have been met with broad support. However, experts warn that the road to implementation may not be straightforward, with concerns about accessibility and the risk of consumer confusion.
The FCA’s latest proposals aim to bridge the gap between financial guidance and advice for pensions, offering targeted support to help consumers make more informed decisions about their retirement savings.
This initiative is part of a broader review of how investment guidance operates and follows growing concerns over the difficulties many consumers face when facing the complex world of pensions.
According to the FCA, more than 16 million people in the UK are currently saving for their retirement through defined contribution pension schemes; however, the vast majority of these individuals lack a clear understanding of how to draw down their pensions. FCA research reveals that 75 per cent of consumers over the age of 45 either do not have a clear plan for accessing their pension savings or were unaware that they even needed to make such a choice.
Sarah Pritchard, executive director of consumers, competition and international, at the FCA, commented: “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.”
FCA proposals
Targeted support would enable firms to assist consumers in various situations, such as identifying individuals who are withdrawing from their pension unsustainably or those uncertain about how to access their retirement income.
Firms would be able to offer tailored suggestions to specific groups of consumers with similar needs. The FCA proposes that this targeted support should be provided at no cost to the consumer.
The reaction
While the proposals are seen as a positive move, some observers have voiced concerns about potential challenges in their implementation.
Step in right direction
Stuart Ritchie, partner at wealth and financial planning company GSB Wealth, said: “I believe these FCA proposals are a step in the right direction. Helping people navigate complex pension decisions with clearer guidance and targeted support will make a real difference. For far too long we’ve faced a gap between financial guidance and advice, leaving many people to make serious decisions with limited support.
“While financial planners provide an extremely valuable service, I am well aware that advice often reaches those who are relatively well off, with less than 10 percent of those approaching retirement receiving advice. By identifying common actions for people in similar circumstances, the profession can create more accessible and beneficial journeys to help individuals maximise their retirement income.”
Need to be careful
Tom McPhail, director of public affairs at the financial services consultancy The Lang Cat, echoed Ritchie’s views but urged caution regarding the risks of potential confusion.
He pointed out that while the proposals suggest that support could be offered free of charge at the point of use, this could lead to an uneven playing field where only the largest firms with sufficient resources can provide this targeted support.
“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 per cent of the UK population.
“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 , 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.”
Help with decision-making
Rob Yuille, head of long-term savings policy at the Association of British Insurers (ABI), welcomed the FCA’s proposals, particularly the focus on personalised guidance, noting that recent ABI research had shown that tailored advice could significantly improve decision-making.
“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.”
Targeted support needs clear definition
Chet Velani, managing director at financial services company EV, welcomes the FCA’s proposals for targeted support, believing they can improve outcomes for millions who currently do not access pension advice. However, he cautions that defining the characteristics of consumer segments is key to ensuring the effectiveness of these solutions.
“The FCA is suggesting meaningful change, but as with everything, the devil is in the detail. How the characteristics within the consumer segments are identified and defined will be crucial to providing solutions to ensure people have a comfortable standard of living in retirement.
“As the FCA CEO has already said, targeted support won’t give everyone the perfect advice. It may be better than the current guidance offered, although still is likely to fall short of personalised advice. We believe far more can be done to extend advice, rather than simply support, through digitally-driven offerings which can help firms deliver advice cheaply to more people.”
Data is key to Consumer Duty compliance
The importance of good-quality data in meeting the FCA’s Consumer Duty requirements is touched on by Andrew Gething, managing director of MorganAsh, a company providing data systems to help firms manage customer vulnerability.
“The FCA’s review into 180 Consumer Duty board reports is yet another reminder of the crucial role that good-quality data plays in meeting the FCA’s requirements and demonstrating compliance,” he says.
“Not only did some firms lack sufficient quality data, but there was also a lack of consideration towards all customer groups – particularly vulnerable customers.”
“Robust data is the cornerstone of Consumer Duty – it’s necessary for good MI and essential in identifying who vulnerable customers are,” he explains. With the right systems, Gething adds, firms can monitor outcomes and make improvements. “With the right systems and processes in place, firms can monitor outcomes throughout the lifetime of products, make necessary improvements and then report on their findings.”
Gething concludes that even smaller firms must ensure good outcomes. “Small businesses still have the same responsibility to ensure good customer outcomes,” he says, urging firms to embrace technology and data to gain a competitive edge.
Next steps
As the consultation period progresses, closing on mid-February 2025, the FCA will continue to review and refine its proposals, while industry stakeholders offer feedback on how best to implement these reforms.
