The Financial Conduct Authority (FCA) has announced plans to allow firms to offer targeted support to help individuals with their pensions and investment decisions by providing ‘suggestions to groups of consumers with common characteristics’.

As outlined in the paper, typical users which may benefit from targeted support for consumer investments include; ‘under investors’ – those with significant savings held in cash, ‘misaligned investors’ – those with a misalignment in risk appetite, ‘disengaged investors’ – those disengaged with poor value products, and ‘over investors’ – those who may struggle to deal with every day or emergency expenses with their liquid savings.

Typical users which may benefit from targeted support for pensions include ‘under accumulators’ - those not saving enough, ‘disengaged accumulators’ - those not engaged with their pensions, ‘uninformed accessors’ – those who need help to make the right access decisions when they first access their pension, and ‘over decumulators’ – those withdrawing at a rate which is unlikely to provide a sustainable income through retirement.

Jonathan Watts-Lay, Director, WEALTH at work, comments, “This news has been welcomed by many, but we believe further consideration is necessary to ensure the right support is provided to help all individuals.”

Building financial resilience

It’s well recognised that people need more support to invest for their future. Recent research from WEALTH at work found that42% of workers are worried about not having enough savings for unexpected costs. However, there does seem to be an appetite to save, with the survey also revealing that if people had spare cash, more than two-fifths (42%) would save it for a rainy day i.e. such as in an ISA.

Employers also recognise the need to help the workforce with their future savings. Research conducted by Reba found that the number of employers that will offer savings via tax-free wrappers including Workplace ISAs is set to grow by 114%.

Jonathan Watts-Lay, Director, WEALTH at work, comments, “Many people don’t know where to start when investing and often can’t access advice either due to cost or insufficient monies to invest. Targeted support may help savers to get started out and could be helpful to bridge the advice gap. Not only this but targeted support could be a great way to help disengaged investors make active choices and get better value from their investments.”

The FCA suggest that firms would need to pre-define scenarios to provide targeted support and pre-define consumer segments, and ready-made solutions in these scenarios.

Preparing for retirement

It’s clear that many people also need support to make better decisions and achieve more positive outcomes for retirement.

Our most recent research found that due to the impact of the increased cost of living almost half (45%) of workers claim they will never be able to afford to retire, which is up from two fifths (39%) twelve months ago, and a third (33%) in 2023.

The majority (81%) of those surveyed are also concerned the increased cost of living means they will be less comfortable in retirement due to a shortfall in pension savings. Moreover, the same amount (80%) say they are concerned they will have to work longer to make up for it. In fact, almost a third (32%) say they will look to delay retirement.

Jonathan Watts-Lay, Director, WEALTH at work, comments, “Targeted support could play a key role in helping people plan ahead and understand if they are saving enough to create the kind of retirement they may like, and what the options are if they find they don’t have enough. This could lead to improved pensions engagement and increases in contributions. Not only this, but it could help people to understand what is required to generate a desired level of income throughout retirement.

However, by design, targeted support is not holistic and therefore will not consider all of someone’s accumulated wealth as well as their personal circumstances and needs. So, for many with larger sums of money, regulated advice will still remain the best option, especially when planning for retirement or considering retirement income options as this can be complex. Therefore, targeted support may not be a solution for everyone, although it could possibly offer a gateway to advice for some.”

The challenges and how we can help

Jonathan Watts-Lay, Director, WEALTH at work, comments, “Understandably some are concerned and believe targeted support could mean targeted sales, therefore consumer protection is key, and we look forward to reviewing the regulatory framework because, as ever, the devil will be in the detail. Another challenge within this new framework will be the balance between consumer protection and regulation, as if the regulation is too stringent few firms may sign-up to offer the service - whereas if it is too relaxed there are concerns around potential mis-selling. So, the definitions of how the characteristics define the solutions are key and could become a legal minefield which Pension Trustees may be uncomfortable with.”

Watts-Lay explains; “At WEALTH at work, we already help hundreds of organisations to support their employees to improve their financial future through financial education, one-to-one guidance and investment advice. We find that once people are informed about their finances, they are more likely to make informed decisions and take steps to improve their financial situation. This includes better engaging with pensions and increasing contributions, building financial resilience through Workplace ISAs, and taking investment advice at retirement.”

We look forward to the full details from the consultation which will close at the end of August and reviewing how targeted support could help us support even more people improve their financial future.”