Nearly a decade after pension freedoms, the Financial Conduct Authority is on Thursday consulting on proposals to offer a halfway house between guidance and advice on pensions, ahead of a consultation on rules in the first half of next year. Alongside the first consultation, a discussion paper seeks views on further ways to better support consumers. 

Most people are “ill-equipped to manage complex pension decisions confidently”, the FCA has said, and in response is proposing ‘targeted support’. Under this concept, firms can make recommendations to savers by grouping them based on specific characteristics, but without having a full picture of their finances. The consultation comes after the government said in 2022 that it wanted a review of the boundary between advice and guidance.  

The watchdog called it “a significant moment” as the new regulations will define the support framework available around pensions for years to come.  

Executive director of consumers, competition and international, Sarah Pritchard, 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.”  

Pritchard added that the FCA is deliberately starting with pensions before making proposals for retail investments because it knows that people find pensions particularly difficult to understand.  

The need for mass decision-making support that does not come with the price-tag of tailored advice arose with the introduction of pension freedoms, but the framework has remained largely unchanged until now, save for a ban on contingent charging. Three-quarters of people over 45 do not have a clear plan for how to take money from their pension or did not know they had to make a choice, but just 9% took regulated advice in the preceding 12 months, according to the Financial Lives 2024 survey. 

“Targeted support would allow firms to provide support to consumers in different scenarios, for example, if they identify someone is drawing down on their pension unsustainably, or where a consumer is facing uncertainty about how to take a retirement income,” the watchdog explained. “Firms would be able to provide a bespoke suggestion to specific groups of consumers who share the same characteristics.” 

The regulator envisages pre-defined scenarios under which targeted support can be provided, firms creating consumer segments and offering the same ready-made solution to all people in a particular segment.  

Crucially, the FCA is proposing that targeted support should predominantly be provided for free to reach as many people as possible. 

The FCA has not yet said whether targeted support would be a new regulated activity or be included as an activity under existing permissions. 

The Treasury noted there are different possible routes to delivering a targeted support regime, including through legislative change. 

"The government is committed to driving this work forward and will work closely with the FCA to assess options for implementation," it said.

Consultation questions include whether consumers should be able to complain to the Financial Ombudsman Service after receiving targeted support, and where the greatest liability risk arises for firms. While consumers could experience poor outcomes by following targeted support and may want protection, access to redress tends to drive up costs for firms, through higher insurance premiums, ombudsman case fees and the levy that funds the ombudsman.  

Another aspect of the proposals set to lead to discussions is whether firms will be able to make a recommendation on how people should access their pension pot generally, or if they can recommend specific products, which could lead to conflicts of interest.  

The FCA said that targeted support should deliver suggestions that would generally amount to a personal recommendation in the current framework, with the notable exception of annuities, partly because these are irreversible – no specific annuity products can be recommended. 

PIMFA, the trade association for financial advisers, welcomed the FCA’s proposals, but voiced concern over product sales.   

 

Head of public affairs Simon Harrington said that the FCA was still considering proposals which may provide for the direct sale of product solutions to consumers based on limited information was “a point of concern”.  

"There remains a fundamental difference between a firm telling a consumer that people with similar characteristics would likely buy a drawdown product, as opposed to telling that person that they could buy a specific drawdown product. There are clear conflict of interest issues that arise from the latter approach, which the FCA highlights in the paper,” Harrington cautioned, suggesting this issue should be dropped. 

 
Providers were generally positive about the proposals. Mike Ambery, retirement savings director at Standard Life, said: “By enabling firms to work with customers to determine whether there are common actions that people in similar circumstances typically take, these proposals should empower the industry to provide customers with beneficial journeys that can help them maximise their retirement income.” 

Aegon’s pensions director Steven Cameron called the consultation “the most exciting chapter” in the advice guidance boundary review.   

  

“While there’s much detail to thrash out, targeted support could herald a ‘new dawn’, bringing huge benefit to the millions of auto-enrollees who regrettably won’t consider advice but who are crying out for help,” he said. 

  

Cameron welcomed that the FCA is structuring its proposals primarily around outcomes and the Consumer Duty, proposing further rules or guidance only where required to offer firms clarity or to ensure consumer protection. 

  

However, he also said it was “critical” consumers understand that targeted support will not offer a personal recommendation in the way financial advice does.  

“This is a once-in-a-decade opportunity,” said Just Group’s communications director Stephen Lowe, calling on the industry to get behind the issue.

 

He said narrowing the advice gap was likely to be a multi-year project but called targeted support a potential “game changer”.

 

As well as consulting on targeted support, the FCA is inviting stakeholders to say if they think other areas of FCA regulation may need to change to enable firms to better support consumers in their decisions. 

It has published a discussion paper seeking views on whether further changes might be needed to better support consumers, for example through digital tools, consolidation of pension pots and the rules around self-invested personal pensions. 

The consultation closes on 13 February 2025. The discussion paper is open until 27 February 2025.