Millions of pension savers could get more support to manage their money under new proposals.
The FCA, the regulator repsonsible for policing financial advice as well as pensions, savings and mortgages, said more needs to be done to help savers with their pension.
It is hoping to address a debate around what is advice and what is guidance; because a pension involves complex investment decisions the regulator has had to tread carefully as to how it regulates the advice or guidance given.
The FCA said helping savers get more advice would also help the UK economy because they would be better informed as to how investing works.
More than 16 million people in the UK save for their retirement into what is known as a defined contribution, or DC pension scheme, these are schemes often set up by an employer as part of auto enrolment.
They are not the same as final salary, or defined benefit schemes, which are slowly being phased out due to the expense and the financial burden involved with running them.
The FCA said its research found 75 % of consumers, aged over 45, did not have a clear plan for how to take money from their pension or didn’t know they had to make a choice.
It said the vast majority of consumers struggled to make pension decisions and that only nine per cent of adults have taken full regulated advice in the last 12 months.
Now the FCA has set out ways to tackle the gap that exists between bespoke financial advice and guidance – examples of existing guidance being information provided for free through MoneyHelper, as well as by firms.
The FCA is now proposing what it called targeted support which would mean pension firms could help consumers with their different needs for example, if they could identify someone is drawing down on their pension in a way which meant they were spending it too quickly, or where a saver was unsure how to take their pension.
The FCA will follow with further proposals on introducing concepts of targeted support and simplified advice for other retail investments next year.
The FCA encourages feedback from all stakeholders about the proposals and views are sought by mid-February 2025.
Sarah Pritchard, executive director of consumers, competition and international, at the FCA, said: “We know people find pensions particularly difficult to understand, so we are deliberately starting with this to help consumers with their pension decisions.
“If we get this right, consumers will be better supported in making financial decisions. This will potentially lead to more people investing which will help provide capital necessary to stimulate economic growth.”
Mike Ambery, retirement savings Director at Standard Life, part of Phoenix Group welcomed the FCA’s update.
He 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.”
Rachael Griffin, financial planning expert at Quilter, said targeted support had the potential to act as a stepping stone towards full advice while providing information that feels more relevant to people than generic guidance.
Tom Selby, director of Public Policy at AJ Bell, said 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 fact three-quarters of over-45s have no clear plan about how to take money from their retirement pot demonstrates just how vital it is that guidance is improved.”
Steven Cameron, pensions director at Aegon, said the reforms for pensions were the most exciting chapter yet while Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said free or low-cost financial coaching can help savers and investors tackle the fundamentals of retirement saving, giving them the confidence they need to start investing or equipping them with the knowledge to take more control of their future.