Millions of pension savers could get a significant financial boost thanks to a massive rule change being implemented by the UK’s money regulator. Britons will get free targeted support to manage their retirement funds under new proposals from the Financial Conduct Authority (FCA).
The plans aim to bridge the gap between costly bespoke financial advice and basic guidance, potentially affecting over 16 million Britons with defined contribution pension schemes.
As part of the regulator’s plans, firms will provide personalised support in various scenarios, such as when savers are drawing down their pensions unsustainably or struggling with retirement income decisions.
With this move, retirement savers will receive suggestions based on characteristics they share with similar consumers, rather than paying for individual financial advice.
Recent FCA research reveals a concerning gap in pension planning, with 75 per cent of over-45s lacking a clear strategy for accessing their retirement savings or unaware they need to make choices. Less than one in 10 adults have taken full regulated advice in the past year, highlighting the scale of the problem.
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A rule change from the FCA could be a big win for pension savers
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Sarah Pritchard, the executive director at the FCA, said: “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.”
“We know people find pensions particularly difficult to understand, so we are deliberately starting with this to help consumers with their pension decisions,” she added.
Industry experts have widely welcomed the FCA’s proposals to reform pension guidance amid growing concerns that Britons are not sufficiently saving enough for retirement.
Pete Glancy, the head of pension policy at Scottish Widows, said: “People want meaningful help from experts when it comes to making big decisions and financial experts such as pension providers need to find ways of steering people towards good outcomes.”
Lisa Picardo, the chief business officer at PensionBee, called the regulator’s latest decision “a welcome step toward closing the gap between financial advice and guidance.”
“For too long, millions of people have been left without sufficient support when making important yet often complex retirement decisions,” said Lily Megson, Policy Director at My Pension Expert.
Tom Selby, the director of public policy at AJ Bell, noted that millions of people currently make complex retirement decisions “on an island, without receiving the help they need.”
The FCA is seeking feedback on its proposals until mid-February 2025. The regulator expects to consult in summer 2025 on the specific rules that would create the new framework.
The proposals are part of a wider review examining how the boundary between advice and guidance on investments operates. The FCA plans to make additional proposals next year on introducing targeted support and simplified advice for other retail investments.
These changes stem from the Government’s 2022 announcement of a fundamental review of investment advice and guidance, known as the Advice Guidance Boundary Review (AGBR).
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Furthermore, pension providers would be able to identify when savers need specific guidance. An example of this would be if someone appears to be spending their pension too quickly.
The support would be tailored to groups of similar consumers rather than providing individual financial advice. Some people receiving this targeted support might then be encouraged to seek full financial advice based on the impact on their finances.
The FCA is also exploring whether additional changes might be needed, including the use of digital tools, pension pot consolidation and rules around self-invested personal pensions.
