Targeted support: ‘Important the FCA gets this right’
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The pensions industry has welcomed proposals for targeted support on pensions, but called for clarity around how the concept will be available in the trust-based space and whether support will be for a single product. A Financial Conduct Authority consultation on targeted support closes on Thursday.
Targeted support has been proposed by the FCA as a halfway house between financial guidance and advice, whereby firms could group consumers according to certain characteristics and make a bespoke suggestion on what to do with their pension pots based on this.
The FCA regulates advisers and providers of contract-based pensions, but the industry wants to know how it will work in the trust-based environment and whether consumers would need to take targeted support for each individual product they own.
Targeted support has been proposed by the FCA as a halfway house between financial guidance and advice, whereby firms could group consumers according to certain characteristics and make a bespoke suggestion on what to do with their pension pots based on this.
The FCA regulates advisers and providers of contract-based pensions, but the industry wants to know how it will work in the trust-based environment and whether consumers would need to take targeted support for each individual product they own.
Providers should take a consumers’ other products into account – SPP
The Society of Pension Professionals thinks the proposals could reduce harm to consumers if take-up is widespread among regulated firms.
Amanda Cooke, chair of the SPP’s Financial Services Regulation Committee, said the FCA had made some “sensible and welcome proposals” but that the devil will be in the detail.
“It’s important for industry and consumers that the FCA gets this right, especially in the context of other current workstreams focussed on retirement planning," Cooke said.
However, the SPP points to areas that might need to be clarified, noting the FCA “does not give any indication as to whether, as part of a targeted support service, a firm is expected to take into account other pension arrangements from other providers when judging if a better outcome could be achieved or whether the customer would be expected to go through multiple targeted support processes for each product”.
For the SPP, it is clear that “it would be a retrograde step” if providers only offer support in relation to products held with them.
However, the SPP points to areas that might need to be clarified, noting the FCA “does not give any indication as to whether, as part of a targeted support service, a firm is expected to take into account other pension arrangements from other providers when judging if a better outcome could be achieved or whether the customer would be expected to go through multiple targeted support processes for each product”.
For the SPP, it is clear that “it would be a retrograde step” if providers only offer support in relation to products held with them.
While the FCA wants targeted support to be free of charge, the SPP thinks this should be up to providers, and points out that firms would likely want to recoup costs for a free service elsewhere. Liability for negative or unwanted outcomes is another concern.
Grey areas can lead to risk aversion
The Association of Consulting Actuaries welcomed the proposals but is calling for “clarity regarding how trust-based schemes will be able to confidently make the most of targeted support, even if this is to refer further consideration of this matter to the [Department for Work and Pensions] and the Pensions Regulator”.
Tess Page, who chairs the association’s defined contribution committee, said regulators should think about how targeted support would work in practice.
“Consideration will need to be given to introducing a framework that provides trustees with the necessary comfort that allows them to provide targeted support, or something equivalent,” she said.
The proposals are a step towards improving the savings journey for DC members, agreed Jacqui Reid, a partner at law firm Sackers.
“While these proposals are not intended to apply to trustees of occupational pension schemes directly, we understand that the FCA is working closely with the DWP and TPR with the aim of either extending them to trustees or providing something similar in the trust space,” Reid said.
“However this is done, it will be imperative that trustees remain able to support their members with pensions guidance, without straying into the sphere of regulated advice. Parameters will need to be carefully and clearly drawn as grey areas can encourage a risk-averse approach which, ultimately, constrains the help provided to consumers,” she added.
Data shows that over the decade since pension freedoms were introduced, most people have failed to take financial advice at retirement, potentially with serious implications for their later life finances. Research by the FCA found three-quarters of people over 45 did not have a clear plan for how to take money from their pension or did not know they had to make a choice, yet just 9% took regulated advice in the preceding 12 months.
How would trustees like targeted support to work in the trust-based space?
Data shows that over the decade since pension freedoms were introduced, most people have failed to take financial advice at retirement, potentially with serious implications for their later life finances. Research by the FCA found three-quarters of people over 45 did not have a clear plan for how to take money from their pension or did not know they had to make a choice, yet just 9% took regulated advice in the preceding 12 months.
How would trustees like targeted support to work in the trust-based space?
