FCA appears to be like to fill recommendation hole on pensions | USAEMALL.com

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Pension holders will be able to receive “targeted support” from companies without it being considered fully regulated financial advice, under proposals from the UK financial watchdog.

The plan, to be announced on Thursday, is part of the Financial Conduct Authority’s push to close the gap in the market for affordable financial guidance.

The FCA said the new rules on pensions assistance would allow companies to make generic suggestions to groups of similar consumers under a lighter regulatory framework.

The watchdog said it hoped that introducing “proportionate standards” on the provision of targeted support would encourage more companies to start providing it at low cost or for free. 

“We think that a new form of regulated support — targeted support — could help many consumers get the help they want at a time they need it, so they can make informed decisions and achieve better outcomes,” it said.

It added the proposal entailed “a trade-off whereby an individual consumer may not achieve the best possible outcome under targeted support,” but it was still “necessary to ensure a scalable service can be delivered”.

Sarah Pritchard, an executive director at the FCA, said: “This will fill a gap that currently exists between more bespoke advice and the general support available.”

Officials also hope this will avoid more people turning to so-called “finfluencers” — social media personalities who provide financial advice without regulatory approval. 

The watchdog appears particularly worried by the large number of people withdrawing cash from their pension at either “unsustainable” rates or with adverse tax consequences.

“Currently, many people report that they do not have the information they need to make the decisions they need to take with confidence,” said Pritchard.

Only 9 per cent of UK consumers took regulated financial advice in the year to May 2024, the FCA said. 

It added that three-quarters of people it surveyed “did not have a clear plan for how to take their money out of their pension or didn’t know they had to make a choice”. 

Two out of every five people with a defined contribution pension plan do not know how much they or their employer are contributing to their retirement savings, it said, adding that half of them have not reviewed their pot value in the past year.

The FCA said companies have said they want to provide more support to customers on their financial options, but refrain due to fears about straying into fully regulated financial advice, which is costly and scrutinised more closely.

“They are reluctant to do so because of fears about inadvertently crossing the advice boundary, concerns about the economic viability of doing so at scale and being liable if the support goes wrong,” it said.

Ian MacKenzie, chief operations and technology officer at the UK’s biggest wealth manager St James’s Place, welcomed the proposals, saying: “There are likely to be multiple avenues for firms supporting retail investors to utilise these proposals in developing new services for those not yet ready to receive advice.”

He added that a “key to the success” of the proposals was for consumers to understand that targeted support was not the same as financial advice.

The proposals are open to feedback until February 13 next year and will be followed by draft rules and guidance next summer for the provision of targeted support on pensions and other consumer financial products.