Pensions at Risk: Are Consumers Being Let Down by the FCA’s Latest Proposals?

The Financial Conduct Authority’s (FCA) recent Consultation Paper CP24/27 – Advice Guidance Boundary Review proposes reforms to deliver “targeted support” for pension savers. At first glance, this initiative seems to promise much-needed assistance for the millions of UK pension savers navigating complex retirement decisions. However, a closer examination raises important questions about who these changes really serve—consumers or the financial services industry.

What Is Being Proposed?

The FCA aims to introduce targeted support that bridges the gap between generic guidance and bespoke financial advice. This support is designed to help savers make informed, timely decisions about their pensions without requiring full, regulated advice. The initiative seeks to address the challenges faced by those who cannot afford professional advice or feel ill-equipped to manage their retirement planning.

Under these proposals, firms could offer tailored suggestions to consumer groups based on shared characteristics, such as those struggling to manage pension drawdowns or unsure how to take retirement income. The FCA’s research highlights the urgency of this support, noting that 75% of consumers over 45 lack a clear pension plan.

But while the intentions appear commendable, the details of these proposals have sparked widespread concern.

Are Consumers Truly Protected?

Financial advisers, consumer advocates, and industry experts have raised alarms about the potential risks of the FCA’s plan. Chief among these concerns is the possibility of firms exploiting targeted support as a direct sales channel for their own products. This opens the door to conflicts of interest, where savers may be nudged towards solutions that prioritise company profits over their best interests.

As Simon Harrington from the wealth management trade body PIMFA put it: “There remains a fundamental difference between a firm telling a consumer that people with similar characteristics would likely buy a drawdown product, as opposed to telling that person that they could buy a specific drawdown product.”

This subtle distinction is critical. The first approach provides impartial guidance, while the second risks steering consumers towards a single option without considering other suitable solutions.

What’s Missing?

Experts warn that the FCA’s proposals may fall short without further safeguards and transparency. Key issues include:

1. Conflict of Interest: Without clear rules, providers might prioritise their own products over independent consumer needs.
2. Data Concerns: Is the available data robust enough to deliver accurate, meaningful support? And do privacy laws limit the ability to personalise guidance effectively?
3. Consumer Understanding: Targeted support is not regulated advice. However, as Ian MacKenzie from St James’s Place warns, many consumers may not understand this distinction, risking confusion and misinformed decisions.
4. Policy Uncertainty: The lack of clarity around potential future tax changes—such as the inheritance tax efficiency of pensions—may lead to knee-jerk reactions and misaligned decisions.

A Step Backward for Consumer Protection?

What’s most concerning is that these changes were unnecessary to achieve the benefits claimed. Existing generic advice guidelines already allowed for tailored, impartial support. The only substantive rule change appears to be permitting firms to sell products directly following this support. This shift dials up the risk for consumers, turning what could have been a safety net into a sales opportunity for providers.

The financial services industry is rightly expected to deliver solutions that prioritise consumer outcomes over profit. Yet these proposals risk compromising that standard, eroding trust in a system already fraught with complexity.

What Needs to Change?

To ensure these reforms truly benefit consumers, the FCA must:

1. Strengthen Safeguards Against Conflicts of Interest: Providers offering targeted support should be explicitly prohibited from steering consumers toward their own products unless all alternatives have been transparently considered.
2. Mandate Clear Communication: Consumers must clearly understand that targeted support is not regulated advice and be provided with a transparent explanation of their options.
3. Commit to a Stable Policy Environment: The government must offer a clear roadmap of future tax and regulatory changes to prevent hasty, ill-informed decisions.
4. Involve Independent Oversight: Independent bodies should monitor how targeted support is delivered, ensuring it remains free from undue influence or bias.

Your Voice Matters

The FCA is inviting feedback on these proposals until 13 February 2025. This is a critical opportunity to demand reforms that genuinely protect and empower consumers. Whether you’re a saver, adviser, or industry professional, make your voice heard by responding to the consultation.

Email: [email protected] Online Form: Visit the FCA’s website for details.

A Call for Consumer-Centric Reform

The goal of closing the advice gap and helping savers make informed decisions is laudable. But achieving it requires more than good intentions; it demands a framework that prioritises consumer interests above all else. Let’s hold the FCA and the industry accountable to deliver targeted support that genuinely empowers, not exploits, UK pension savers.