In an effort to ramp up support for savers across the UK, the City watchdog has unveiled new proposals. The Financial Conduct Authority (FCA) plans will see households getting much-needed help to enhance their savings, especially those with funds in pension and investment firms who currently face hefty charges for financial advice.
Under these fresh reforms, financial institutions will now offer “targeted support” tailored to individual savers’ circumstances, guiding them on what steps to take with their cash. A staggering three quarters (75%) of consumers over 45 either don’t have a clear retirement plan or are unaware of their options, the FCA reports.
With firm’s set to provide more comprehensive support, savers’ engagement with their finances is expected to improve, potentially leading to better long-term savings outcomes. Although the initial focus is on pension providers, the FCA is looking to expand this initiative to include investment firms next year.
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The so-called “targeted support” means companies can advise customers based on guidance suitable for a whole segment of similar savers. If someone is drawing too much from their pension, for example, they could be directed towards more sustainable alternatives drawn from comparable cases.
A key consultation document outlining these prospective changes was released today, as the FCA seeks industry feedback on its latest scheme designed to bolster consumer financial well-being.
Firms could be providing free support, according to the Financial Conduct Authority (FCA). The FCA’s research found that people were more likely to seek help if it was free at the point of use.
In its consultation document, the FCA gave an example of how its proposed targeted support service might work. It explained: “The provider asks the consumer if they want to answer a limited number of questions so they can suggest an appropriate option for consumers with these common characteristics and needs. The provider collects information about the consumer’s preferences for the type of income, and finds out if they need a guaranteed income or can accept a reduced income from time to time. This could involve the provider saying: ‘We suggest taking drawdown initially but that you review your position at least once a year. This suggestion is based on this option being considered appropriate for consumers in similar circumstances with similar needs as you.”
Tom Selby, director of public policy at financial firm AJ Bell, said the existing rules make it difficult for firms to offer anything beyond basic information, so allowing firms to provide more useful support could be “game-changing” for savers.
“The existing regulatory framework makes it difficult for firms to offer anything beyond relatively basic information,” he said. “This means millions of people who don’t take regulated advice are essentially left to make often complex retirement decisions on an island, without receiving the help they need.”
A proposal to create a new ‘targeted support’ regime, which would allow more personal help to be provided for free, could be a game-changer for consumers. This could potentially assist millions of savers in making better-informed decisions about their finances, reports The Sun.
Rachael Griffin, a financial planning expert at Quilter, added: “These proposals could represent a significant step forward in ensuring that consumers are better equipped to make informed decisions about their retirement income and feel confident about their financial futures.”
However, experts have warned that firms will need to ensure savers aren’t misled into thinking they have received regulated financial advice. Tom McPhail, director of public affairs at consultancy The Lang Cat, said: “There is a risk with the proposals 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.
“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.
“Mr Selby said the FCA’s “consumer duty” rules, which require firms to put customers’ needs first, should protect customers from harm, but agreed it is important the new rules don’t confuse savers further. “It is importan.
He explained that, from a customer’s point of view, targeted support is perceived as a standard part of their consumer journey, rather than a separate, distinct service, which could potentially cause confusion.