The Association of British Insurers’ George Ritchie explores the Financial Conduct Authority’s targeted support plans and what they mean for the help trustees can give to their pension scheme’s members.
The Financial Conduct Authority’s (FCA) consultation paper on targeted support marks a pivotal moment in the evolution of support available for pension savers.
But since it’s the FCA, where does that leave occupational schemes, and how does it fit with the Department for Work and Pensions’ (DWP) proposals on guided retirement journeys?
For trustees, there are still plenty of questions about how the proposals could (or should) impact the guidance they provide their scheme members throughout accumulation and into decumulation.
What is targeted support?
Targeted support, as proposed, would be a new regulated activity allowing FCA-authorised firms to provide tailored ‘ready-made suggestions’ to groups of consumers with shared characteristics (or ‘consumer segments’, as the regulator calls them).
These suggestions may contain a product recommendation – for example, you should open a pension, or a stocks and shares ISA – or suggest courses of action within existing products, such as contributing more into a workplace pension.
Why should trustees care?
Many trustees want to improve the help they offer scheme members. But the boundary between regulated advice and unregulated guidance has been a continuing source of anxiety for trustees, with many reluctant to offer more tailored support for fear of breaching FCA rules around advising on investments, as well as rules on arranging transactions and financial promotions.
This is especially true in cases where this support affects what a member does with other pensions that are regulated investments, such as transferring a scheme member into an FCA-regulated product.
The introduction of a new targeted support framework has the potential to add further blurriness to the regulatory landscape for trustees.
This might be more easily navigated by master trusts operated by FCA-authorised firms, as they are likely to deliver targeted support through the authorised entity.
However, not many master trusts – and hardly any single-employer trust-based schemes – have an FCA-regulated firm in their group, and they would be unlikely to seek authorisation just to deliver targeted support. Those schemes would potentially need to partner with third-party FCA-authorised firms to deliver targeted support to their scheme members.
This seems sub-optimal for larger schemes with the capabilities to deliver the support themselves. It also raises questions around whether complaints should be dealt with by the Pensions Ombudsman or the Financial Ombudsman Service, which treat similar cases differently due to different legal bases.
Relationship to guided retirement
Simultaneous to the development of targeted support, the Pension Schemes Bill is legislating for occupational schemes to offer “default pension benefit solutions” to their scheme members. There are similarities between the two areas.
While these defaults are ostensibly being designed for scheme members that “will not or cannot engage” with their pension, realistically, scheme members will have to engage with their scheme, even if just to take tax-free cash before being placed into the default. Targeted support, similarly, will require engagement from customers – and a key touchpoint will be at the point of access to a pension.
But there are differences too. Suggestions made under the targeted support regime will have the benefit of more granular segmentation of customers, with more data utilised. These suggestions can also be given throughout a customer’s pension journey, not just at the point of access.
Defaults may well end up being ‘flex then fix’ solutions, including an element of longevity protection. Yet the FCA consultation proposes that firms won’t be able to suggest specific annuity products as part of targeted support – potentially stopping firms from recommending similar ‘flex then fix’ solutions. This could create issues for FCA-authorised firms offering both, and may lead to further disparity of outcomes between trust-based and contract-based customers.
Most obviously, targeted support is discretionary, meaning firms don’t have to do it, while pension providers will have a duty to provide decumulation defaults. For FCA-authorised group personal pension providers, there’s the added complication of investment pathways.
What should government and regulators do?
Most crucially, trustees need guidance from the FCA and the Pensions Regulator clarifying the FCA’s perimeter with respect to trustees’ ability to offer targeted support (or similar) interventions. This is particularly relevant where schemes transfer members to FCA-regulated products as part of incoming default solutions.
This guidance should be more outcomes-focused and positive, outlining what firms can do, relative to the March 2021 guide for employers and trustees. While regulatory harmonisation will be difficult to achieve, ideally, occupational pension schemes will be able to offer something like targeted support to achieve greater consistency for pension savers.
Collaborative work on the Value for Money framework has shown how effectively regulators can work together. Clearly, the DWP, TPR and the FCA can learn from each other when thinking about what good support looks like for different subsets or segments of consumers.
While the Pension Schemes Bill’s secondary regulations shouldn’t copy and paste from the targeted support framework, there’s an argument for achieving a level of consistency in the design of the default solutions and ready-made suggestions related to retirement income.
In a year’s time, targeted support may well be a live proposition and the Pension Schemes Bill should have received Royal Assent. Better support is on its way.
George Ritchie is policy manager for long-term savings at the Association of British Insurers.
