Targeted support will sit alongside guidance and advice, as well as simplified advice for non-pension products, the Financial Conduct Authority is proposing in a further consultation on financial decision-making support published on Monday. The eight-week exercise closes on 29 August.  

A decade after pension freedoms, targeted support is being proposed as most consumers are ill equipped to make often life-changing financial decisions, particularly at retirement, when they are faced with turning a lump sum into an income stream. Despite this, just 9% of people took regulated advice, the FCA has found. Most are in the dark about their options, with three-quarters of over-45s having no clear plan of how to take their pension money or even knowing that they will need to take a decision, according to provider TPT Retirement Solutions.

Excessive drawdowns, loss of value from staying in cash, lack of coverage for spouses and avoidable high tax charges or people leaving pension tax wrappers are just some of the potential detriments the new policy seeks to address in pensions. The reforms are likely to set the advice and guidance framework for the next 20-30 years, the FCA predicts. 

“We want to help consumers navigate their financial lives and plan for the long term. Some of the most difficult financial decisions we face are how to save, invest and prepare for a comfortable retirement,” said FCA deputy chief executive, Sarah Pritchard. 

Pritchard said the “once-in-a-generation reforms” will help people make financial decisions and give them greater confidence to invest, calling it “a win-win for consumers and firms alike”.

Patrick Coyne, the Pensions Regulator’s interim director of policy and public affairs, said: "It is clear savers need more help to make good retirement decisions. Targeted support and the Guided Retirement Duty are both so important if we are to help savers make the best decisions for them and we want to work with trustees to get this right."

 

He added: "This is an important consultation, and views shared will also help inform the implementation of Guided Retirement and the evolution of the wider regulatory framework. I encourage trustees to respond to make sure targeted support works for savers.”

The consultation published today, alongside a swath of research, follows an earlier one from December and does not fundamentally alter many of the proposals made at the time.  
       

In today’s proposals, the FCA defines targeted support as “a suggestion of a particular product or course of action designed for groups of consumers with common characteristics”, for which “firms need to make it clear that suggestions are not individualised advice”. 

Firms will need to recommend pre-defined solutions for a group of consumers. As in its initial proposals, the regulator envisages that firms provide targeted support free of charge, based on its finding that people are simply unwilling to pay for such services. 

The FCA does not specify which type of firm can provide targeted support, but the level of systems and capabilities it demands will likely limit this to certain providers able to operate at scale. 

While targeted support includes the possibility that firms can recommend “a particular product”, this will not be allowed in the case of annuities; the watchdog wants there to be a clear pause between annuity recommendation and consumers buying one.

“A break in the consumer journey is particularly important as an annuity purchase is irreversible and it is important that consumers should shop around,” it says. 

Also out of bounds for targeted support is recommending pension consolidation into or out of a particular product, after respondents to the previous consultation raised concerns about savers losing protected benefits.  

Targeted support will interact, and to some degree be supplanted, by default pension benefits solution, which are set to come in from 2027 for master trusts and 2028 for other defined contribution schemes. 

With the pension schemes bill already bringing default pension benefit solutions into the trust-based space, the FCA said it is now also developing its policy for guided retirement in contract-based schemes. 

Trustees may want to offer targeted support alongside default pension solutions, the FCA acknowledges: “We recognise that targeted support and guided retirement, particularly with the latter being a mandatory policy, will influence how trustees choose to support their members.”  

Where targeted support is provided in the trust-based space, the FCA refers to joint guidance with the Pensions Regulator about when trustees might be undertaking a regulated activity. It notes that where support relates solely to ‘in-scheme’ occupational pension scheme investments, it will generally not involve trustees carrying out regulated activities without being authorised.  

“We will also consider if further clarity to trustees should be provided,” the consultation adds.   

The FCA is keen to understand the situations and nature of the ready-made suggestions that trustees would want to provide: “We particularly welcome views on how trustees may want to provide targeted support or a version of it that applies solely to ‘in scheme’ benefits. This includes whether this would be done under the trust-based occupational pension scheme itself, or whether trust-based schemes would partner with a third-party FCA-authorised firm to deliver targeted support, or a version of it, for the scheme’s members.”

It wants to understand the support that trustees would like to give to members, “and in particular, whether they feel unable to give such support because they are worried about undertaking a regulated activity or financial promotion,” the FCA adds, saying it is interested in hearing about specific examples from trustees. 

The Association of British Insurers’ director of long-term savings policy, Yvonne Braun, welcomed the FCA’s decision to go ahead with the proposals.

“We expect targeted support to be free and widely available. To ensure its success, it should be backed by a clear process for fair compensation if things go wrong,” she said, referencing industry questions around liability. “While no single solution will entirely close the advice gap, this package is a major leap forward.”

Steven Cameron, pensions director at provider Aegon, said targeted support will never offer the personalised recommendations of holistic advice, but admitted it has a pivotal role to play in offering a more personalised form of guidance for those who cannot or will not seek financial advice, and could even serve as a stepping stone towards full advice. 

Cameron was also hopeful that targeted support could convince savers to increase their pension contributions. 

“While we expect the government’s Pension Adequacy Review to commence shortly, it’s unlikely we’ll see increases in auto-enrolment minimum contribution rates anytime soon. In the meantime, targeted support could play a key role in helping people understand what ‘adequacy’ means for people like them, potentially leading to voluntary increases in pension contributions,” he said. 

Targeted support could also help people decide where pension schemes end up offering multiple default pension solutions. 

He added that the detail of the proposals needs to be studied, and potential barriers to providing support looked at. 

“It’s essential that the Financial Ombudsman Service doesn’t assess targeted support against the same standards as full advice,” he said, and urged policymakers to ensure targeted support is not classed as direct marketing without any special provisions under the Privacy and Electronic Communications Regulations. 

The FCA has conducted extensive consumer research, but so have some providers.  

“We’ve spent the last few months in discussion with people approaching retirement to gauge if and how the concept of targeted support appeals to them, and to understand the customer needs it could address,” said Catherine Foot, director at the Standard Life Centre for the Future of Retirement. “A recurring theme of the conversations is the need to address the anxiety and the feeling of being overwhelmed many have when it comes accessing their pensions.” 

Standard Life will publish a report about consumer expectations of targeted support in the coming weeks, with Foot saying it will provide insights for the industry to use as firms build these services. 

The FCA aims to publish a policy statement by the end of 2025, though it warned the timing will depend on how many responses it receives.  

Is your scheme planning to offer targeted support as well as default retirement option(s)?