The pensions and advice industries have broadly welcomed the Financial Conduct Authority’s (FCA) proposals to introduce targeted support for pensions, but have warned there will be issues that will be challenging to overcome.

As part of its Advice/Guidance Boundary Review, the FCA has published a consultation seeking views on enabling firms to provide groups of consumers who share the same characteristics with bespoke pension decision-making suggestions.

NatWest Cushon head of research and policy, Steve Watson, said it was “fantastic” to see the FCA moving at pace with the reforms, describing them as “excellent news” that could be “revolutionary” for pensions if executed properly.

However, he warned they could have consequences in the trust-based pensions sector, as many trustees will be concerned that offering any form of tailored support could entail regulatory risks.

Product selling concerns

PIMFA head of public affairs, Simon Harrington, said the association was generally in favour of the FCA’s “ambitious” set of proposals.

While Harrington acknowledged it was clear that the addition of more personalisation to help guide people to better outcomes was necessary, it remained a “point of concern” that the FCA was still considering proposals that could provide for the direct sale of product solutions to consumers based on limited information.

"There remains a fundamental difference between a firm telling a consumer that people with similar characteristics would likely buy a drawdown product, as opposed to telling that person that they could buy a specific drawdown product,” he continued.

“There are clear conflict of interest issues that arise from the latter approach, which the FCA highlights in the paper."

"These issues will be challenging to overcome, and we do not consider the FCA's proposals to be any less ambitious without an outcome that leads to a specific product suggestion at the conclusion of the process."

Royal London director of policy, Jamie Jenkins, echoed these concerns, noting that while the proposals could held address the advice gap, anyone looking at the changes as an opportunity to simply sell products “has completely missed the point".

Tax roadmap

Quilter financial planning expert, Rachael Griffin, also welcomed the proposals, stating that they could represent a “significant step forward” in ensuring that consumers were better equipped to make informed decisions about their retirement.

However, she noted that the proposals came at a time when potential changes to the inheritance tax efficiency of pensions was “causing concern” among savers, with individuals making hasty financial decisions in response.

“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,” Griffin said.

“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.”

Nevertheless, Griffin continued, there were important questions that still needed to be addressed, such as whether the data available was robust enough to allow providers to offer meaningful and accurate targeted support, and if data protection rules would 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,” Griffin stated.

“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.

“Additionally, it's vital that customers who benefit from comprehensive financial advice from an adviser are not confused by targeted support.”

Communications

The Lang Cat director of public affairs, Tom McPhail, argued that while the proposals were “revolutionary” in making a “significant and meaningful” change to how firms can communicate with consumers, the industry and regulator had to be careful not to create a market that only the largest firms will be able to operate in.

“There is also a risk with the proposals, which the FCA appears comfortable with, 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,” he continued.

“So 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.”

St. James’s Place chief operations and technology officer, Ian MacKenzie, said the firm believed that targeted support would be helpful in providing guidance to those in decumulation, and that it also saw opportunities to support those in accumulation.

However, he noted that there was a lot of detail to consider, and key to the proposals’ success would be whether consumers fully understand what they have received and what they have not received, i.e. that it is not advice.

“We look forward to continuing to work with the FCA, HM Treasury, and the rest of the sector on the designs of these important reforms and ensuring that they serve the needs of consumers and clients,” MacKenzie concluded.

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