The Financial Conduct Authority has published new proposals to provide ‘targeted’ support to millions of pension savers to help them avoid costly mistakes.

The plans could see firms intervening if pension savers are withdrawing from their pension “unsustainably.”

The regulator is concerned that many pension savers are shunning any kind of advice or guidance and risking making damaging pension errors, such as running out of money in retirement.

The FCA says the “vast majority” of pensions savers are ill-equipped to make often complex and time consuming investment decisions about their pension, with only 9% taking full regulated advice in the past year.

The regulator plans to introduce targeted support to bridge the gap between bespoke financial advice and guidance.

Key proposals include:

• Targeted support allowing firms to provide support to consumers in different scenarios, for example, if they identify someone is drawing down on their pension unsustainably, or where a consumer is facing uncertainty about how to take a retirement income.

• Firms would be able to provide a bespoke suggestion to specific groups of consumers who share the same characteristics

• The FCA is suggesting that targeted support is provided for free 

The FCA says it will follow up with further proposals on introducing concepts of targeted support and simplified advice for other retail investments next year.  

The targeted support in the pensions sector is part of the wider review of the advice-guidance boundary which is currently underway. 

The watchdog says more than 16 million people in the UK save for their retirement into defined contribution pension schemes. However, 75% 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 choices to make.

The FCA’s Financial Lives Consumer Survey 2024 found:

• Engagement by consumers with and understanding of pensions was low  

• The vast majority of consumers were ill-equipped to manage complex pension decisions confidently as only 9% of adults have taken full regulated advice in the last 12 months 

• Some people are disengaged because they fear knowing the reality of their pension pots - the so-called Ostrich effect 

The FCA has cited the MoneyHelper service and other guidance services offered by firms as examples of quality free help. 

The FCA is seeking feedback from stakeholders about the proposals by mid-February 2025. 

Sarah Pritchard, executive director of consumers, competition and international, 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, 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.” 

The FCA is seeking views on whether there are any other specific areas of its regulatory framework which may need to change to enable firms to better support consumers. 

A separate discussion paper from the FCA will seek views on whether further changes might be needed to better support consumers such as the use of digital tools, consolidation of pension pots and the rules around Self-Invested Personal Pensions (SIPPs).  

• Consultation Papers are available on the FCA website.