Millions of pension savers could get more support to manage their money under new proposals set out by the City regulator.
The Financial Conduct Authority (FCA) aims to address the gap between bespoke financial advice, where people receive a personal recommendation to make the most of their money, and guidance, where people have free access to factual information about money from sources such as firms and the Government-backed MoneyHelper service.
Some people may struggle to make important choices about their life savings without help – and some may be disengaged due to the “ostrich effect” of fearing knowing the reality of their pension pots.
Targeted support would allow firms to provide support in different scenarios, for example, if someone appears to be drawing down on their pension unsustainably, or where a saver is facing uncertainty about how to take a retirement income.
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
Sarah Pritchard, FCA
The move would see people receive suggestions developed for a group of similar consumers sharing characteristics rather than being based on someone’s detailed circumstances, as would be the case with bespoke financial advice.
Some people receiving targeted support may potentially be spurred on by the impact on their finances to pay for financial advice.
Targeted support could be given to help prevent people investing inappropriately or inefficiently.
The FCA is suggesting that targeted support is provided for free and it is seeking views on its proposals by mid-February 2025.
It expects to consult in summer 2025 on the rules that would create a new framework.
The proposals are part of a wider review of how the boundary between advice and guidance on investments operates.
The FCA wants people to have access to more help, guidance and advice across all aspects of their financial lives.
We know people find pensions particularly difficult to understand, so we are deliberately starting with this to help consumers with their pension decisions
Sarah Pritchard, FCA
The regulator will make further proposals on introducing concepts of targeted support and simplified advice for other retail investments next year.
In 2022, the Government announced plans to fundamentally review how the boundary between advice and guidance on investments is operating. The Advice Guidance Boundary Review (AGBR) is being carried out by the FCA, in conjunction with the Treasury.
More than 16 million people in the UK save for their retirement into defined contribution (DC) pension schemes – with the saver bearing the risk of the eventual size of their pension pot, due to factors such as the amount paid in and investment performance.
But according to the FCA’s 2024 financial lives survey, 75% of over-45s do not have a clear plan for how to take money from their pension or did not know they had to make a choice.
Less than one in 10 (9%) adults have taken full regulated advice in the past 12 months, according to the research.
The FCA is also seeking views on whether further changes might be needed to better support people, such as the use of digital tools, consolidation of pension pots and the rules around self-invested personal pensions (Sipps).
The FCA’s proposals would allow us to have conversations with customers which were not possible before and this is therefore welcome
Pete Glancy, Scottish Widows
Sarah Pritchard, executive director of consumers, competition and international at the FCA, said: “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.”
Pete Glancy, head of pension policy, Scottish Widows, said: “People want meaningful help from experts when it comes to making big decisions and financial experts such as pension providers need to find ways of steering people towards good outcomes and away from risky or damaging situations.
“The FCA’s proposals would allow us to have conversations with customers which were not possible before and this is therefore welcome.”
Rob Yuille, head of long-term savings at the Association of British Insurers (ABI), 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.”
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment service, said: “The FCA’s proposal to boost the level of support pension savers have access to is an important step to ensure more consumers can make informed decisions about their retirement saving.
“It is well documented that the UK has an ‘advice gap’, with wealthier people willing to pay for personalised financial advice to manage their savings and investments, while those with more modest savings are less inclined to do so. This can either be because they do not think their level of wealth requires it, feel they cannot afford advice or because they are unsure of the benefits.
“This can be particularly problematic for people’s retirement savings as many are failing to save enough into their pension to afford the comfortable lifestyle they desire after they stop working.
“Yet the decisions on how to prepare for retirement and access pension benefits are among the most consequential ones most people will make in their lives.”
