The changes could mean pension savers being ‘nudged’ towards making better decisions about their retirement savings
Millions of workers are to be offered more help managing their retirement savings under a proposals that experts say will be “game changing”.
Those approaching retirement face numerous decisions about how to take their cash.
They can buy an annuity, which is a set annual income for life, or can enter drawdown, where they take part of their pension while leaving the rest invested.
Additionally, they can opt to take a tax-free lump sum worth up to 25 per cent of their saving pot’s value.
To give more personalised help to people making decisions about their pensions, the Financial Conduct Authority (FCA) has set out proposals that aim to address the distinction between financial advice, which is defined as bespoke and personal recommendations, and guidance – where people are given access to more general information.
The City watchdog’s “targeted support” regime would allow firms to provide support in different scenarios, such as if they were drawing down on their pension unsustainably, or if they faced uncertainty about how to take their income.
Former pensions minister Sir Steve Webb, now a consultant at LCP, said firms were often “nervous” about suggesting to customers what they could do with their pension savings, even if there was a “fairly obvious” good move they could make.
He said how much of a difference the proposals would make would depend on the detail and how consumers reacted, but that they had potential to see customers “nudged” in the direction of making better pension decisions.
“Firms are nervous about giving advice that they aren’t supposed to give and so often err on the side of caution. But there are lots of circumstances when it would be reasonable to nudge someone in the right direction,” he said.
More than 16 million people in the UK save for their retirement into defined contribution pension schemes.
The targeted support plan would see people receive suggestions developed for a group of similar consumers sharing characteristics – falling somewhere between advice and general guidance.
Tom Selby, director of public policy at AJ Bell, said: “Regulated advice remains the gold standard but the proposal to create a new ‘targeted support’ regime allowing more personal help to be provided for free could be a gamechanger for consumers, potentially helping millions of savers make better-informed decisions about their finances.
“The regulator has identified millions of people with investible assets who are crying out for help making decisions, but many cannot afford advice or prefer to manage their own investments on a DIY basis.”
The FCA is suggesting that targeted support is provided for free and is seeking views on its proposals by mid-February 2025. It then expects to consult in summer 2025 on the rules that would create a new framework.
Its announcement comes after a survey it ran this year suggested 75 per cent of consumers aged over 45 do not have a clear plan for how to take money from their pension or did not know they had a choice.
Stephen Lowe, group communications director at retirement specialist Just Group, said: “This is a once-in-a-decade opportunity and it’s critical everyone across the industry gets behind this theme for the benefit of savers. Closing the advice gap by a meaningful amount is realistically likely to be a multi-year project.
“Targeted support could be a game changer and it’s the service that has generated most optimism.”
Sarah Pritchard, executive director of consumers, competition and international at the FCA, added: “We want people to have access to the help, guidance and advice that they need, at a cost they can afford, when they need it, so that they can make informed decisions. So, we are reviewing the boundary between guidance and advice across investments.
“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.”