Massive change to pension rules planned in savings boost for millions – but experts warn about risk to savers
HOUSEHOLDS are set to get support to help them boost their savings under new City watchdog plans.
Currently, savers who have cash with pension and investment firms can’t get any kind of help with where to put their money without paying a significant fee for financial advice.
But under plans confirmed today, first revealed by The Sun earlier this year, financial firms will be able to provide “targeted support” to savers to help them decide where to put their cash.
This would be in the form of tailored guidance on what savers should do with their money based on their circumstances.
The Financial Conduct Authority (FCA) said that three quarters (75%) of consumers aged over 45 don’t have a clear plan for how to take money from their pension or didn’t even know they had a choice.
By allowing firms to offer savers extra support, the aim is that it will increase savers’ engagement with their money so they make decisions that could boost their savings long-term.
The latest proposals will apply to pension providers. The FCA said it will consult on introducing targeted support for investment firms next year.
How will the targeted support work?
The FCA said the so-called “targeted support” would allow firms to provide guidance to customers based on suggestions developed for a group of similar consumers.
For example, if they identified someone was taking an unsustainable amount from their pension, they would be able to suggest a more sustainable option based on other people in that customers’ situation.
In a consultation into the proposals, published today, the FCA suggested that targeted support should be provided by firms for free.
It said its own research found that support being free at the point of use positively influenced peoples’ interest in accessing the support.
Example given by the FCA
In the FCA's consultation document, it provided an example of its proposed targeted support service in action.
It said: “The provider asks the consumer if they want to
answer a limited number of questions so they can suggest an appropriate option for consumers with these common characteristics and needs.
The provider collects information about the consumer’s preferences for the type of income, and finds out if they need a guaranteed income or can accept a reduced income from time to time.
This could involve the provider saying: ‘We suggest taking drawdown initially but that you review your position at least once a year. This suggestion is based on this option being considered appropriate for consumers in similar circumstances with similar needs as you.”
What do the experts say?
Tom Selby, director of public policy at financial firm AJ Bell, said the existing rules make it difficult for firms to offer anything beyond basic information, so allowing firms to provide more useful support could be “game-changing” for savers.
“The existing regulatory framework makes it difficult for firms to offer anything beyond relatively basic information,” he said.
“This means millions of people who don’t take regulated advice are essentially left to make often complex retirement decisions on an island, without receiving the help they need.
“The proposal to create a new ‘targeted support’ regime allowing more personal help to be provided for free could be a game-changer for consumers, potentially helping millions of savers make better-informed decisions about their finances.”
Rachael Griffin, financial planning expert at Quilter, added: “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.”
However, experts have cautioned that firms will need to ensure savers aren’t misled into thinking they have received regulated financial advice.
Tom McPhail, director of public affairs at consultancy The Lang Cat, said: “There is a risk with the proposals that in allowing firms to use language with customers such as ‘we suggest (a particular product solution), based on this being appropriate for people in similar circumstances to you’ could result in customers believing they have received advice when they have not.
“We welcome these proposals and the FCA’s boldness is trying to help savers achieve better financial outcomes, however the solution is by no means risk free; effective customer communication and disclosures will be essential to mitigate this risk.”
Mr Selby said the FCA’s “consumer duty” rules, which require firms to put customers’ needs first, should protect customers from harm, but agreed it is important the new rules don’t confuse savers further.
“It is important that, from a customer’s perspective, targeted support is simply seen as normal and embedded within existing consumer journeys rather than being a distinct, separate offering, which may lead to confusion,” he said.