While welcoming the FCA’s proposals on targeted support for retirement savers, Rachael Griffin, financial planning expert at Quilter, points out that for the proposals to succeed the opfference between advice and targeted support must be fully understood by consumers so as not to cause confusion, not least when set against the moving of pensions tax goalposts, which can lead to reactive behaviours and hasty financial decisions that may not align with saves’ long-term goals.
We welcome the FCA’s recent initiatives aimed at providing targeted support to millions of people with their pensions. These proposals could represent a significant step forward in ensuring that consumers are better equipped to make informed decisions about their retirement income and feel confident about their financial futures.
Providers must be better empowered to assist those drawing down on pensions unsustainably or facing uncertainty about how to approach retirement income when not taking regulated advice. With only 9% of adults engaging with full regulated financial advice, according to the FCA, there is a clear and urgent need to expand the reach of support – whether advice, guidance or something in between the two. Targeted support, as suggested by the FCA, has the potential to act as a stepping stone towards full advice while providing information that feels more relevant to people than generic guidance.
Many people are sleepwalking into retirement, unaware of the critical decisions they must make to secure their financial futures. In the era of defined benefit schemes and annuities, this was less of a concern, as a guaranteed income provided a reliable safety net. However, since the introduction of pension freedoms, individuals must take far greater responsibility for their retirement planning. This shift demands more engagement from savers, which is where initiatives like pension wake-up packs play an essential role. These packs aim to prompt savers to ask fundamental questions such as, “Am I saving enough?” “Do I understand the different ways to use my pension?” and “Should I seek guidance or advice to help make these decisions?”
Our customer testing of wake-up packs reveals that most people have little understanding of their pensions before engaging with these materials. After reading the packs, they typically learn three critical points: that a personal pension doesn’t provide a guaranteed income, that guidance is available through Pension Wise, and that pension scams are a real threat. While helpful, these packs often stop short of providing actionable guidance. Targeted support, however, has the potential to go much further by offering insights tailored to specific consumer needs. By setting out how individuals with similar characteristics plan their retirement, targeted support could bridge the gap between one-size-fits-all communications and more personalised assistance.
The FCA’s proposals for targeted support come at a time when potential changes to the inheritance tax efficiency of pensions is causing concern among savers. The mere suggestion of reforms often leads to reactive behaviours, with individuals making hasty financial decisions that may not align with their long-term goals. For instance, the prospect of pensions becoming part of the taxable estate has already spurred some customers to think about depleting their pensions more quickly so to leave less left upon death. These types of behaviours show that for targeted support to be truly effective, it must be accompanied by a clear roadmap of future tax changes. This would help savers and providers alike to plan with confidence, reducing the likelihood of knee jerk decisions and ensuring that targeted support delivers the best possible outcomes in a stable policy environment.
As we approach a tipping point, with the first generation of entirely defined contribution pension savers nearing retirement age, the stakes are higher than ever. This cohort faces significant risks, as poor decisions could have a lasting negative impact on their financial well-being in later life. Targeted support is not a magic fix and cannot replace the need for broader financial literacy and planning, but it could serve as a crucial building block. By fostering greater engagement and offering clearer options, it can help savers make better decisions, reducing risks and improving outcomes.
However, the FCA states that firms would need to apply the threshold of having reasonable grounds for believing that the delivery of targeted support suggestions would deliver a better outcome for their customers than if targeted support was not provided. This should avoid targeted support being used as a sales channel and funnelling customers into unsuitable solutions unless they are demonstrably beneficial.
Nevertheless, there are important questions that must be addressed. Is the data available robust enough to allow providers to offer meaningful and accurate targeted support? Will data protection rules limit the ability to tailor communications sufficiently? A consistent approach across the industry, with clear consumer personas, will be vital to avoid fragmented, inconsistent, or muddled targeting. Without this, there is a risk of creating confusion rather than clarity.
For targeted support to succeed, it must also be fully understood by consumers and providers alike. The roles and boundaries between guidance, targeted support, and regulated advice must be crystal clear. Direct bespoke product recommendations should remain firmly within the remit of regulated advice, maintaining the essential distinction between guidance and advice.
For targeted support to succeed, it must also be fully understood by consumers and providers alike. The roles and boundaries between guidance, targeted support, and regulated advice must be crystal clear. Direct bespoke product recommendations should remain firmly within the remit of regulated advice, maintaining the essential distinction between guidance and advice.
Additionally, it’s vital that customers who benefit from comprehensive financial advice from an adviser are not confused by targeted support. We must avoid situations where clients feel conflicted between the holistic advice from their adviser and the support from their provider, which may not consider their entire financial situation.
As the FCA refines these proposals, Quilter is committed to contributing to the consultation process and supporting initiatives that promote financial confidence and well-being. By working together, regulators, providers, and consumers can ensure that these reforms lay the foundation for a more secure retirement future for millions across the UK.
Main image: ty-feague-gnDbEnWFMWs-unsplash
