FCA ‘targeted support’ proposals raise questions for pension scheme trustees

The FCA’s targeted support proposals aim to bridge the gap between general guidance and bespoke financial advice. This initiative is part of the regulator’s ongoing advice-guidance boundary review (AGBR) and is designed to help consumers make informed decisions about their pensions at critical moments.

What is targeted support?

Targeted support would currently be treated as regulated advice, but the plan is for this to be treated differently – to broaden access but with appropriate consumer protections. Targeted support would not be mandatory under these proposals, but pension schemes and providers would be able to make suggestions for similar consumers, (or “people like you”), and support would be delivered at scale, but segmented for similar consumers.

Pension providers would pre-define scenarios and consumer segments where they have “reasonable grounds” to believe that better outcomes could be achieved with targeted support and then develop ready-made solutions to deliver those better outcomes.

At the moment, for savers looking to generate income from their pension pot, guidance-based services might describe the four options available and the financial risks and benefits of each. Under targeted support, providers would ask a limited number of questions - such as type of income preferred or whether guaranteed income is required - and then suggest an appropriate option for consumers with these common characteristics and needs.

How the market might develop

The build cost of a targeted support proposition might be high relative to more immediate commercial gains, so it will be interesting to see how this develops. Some in the industry have suggested that only commercial dashboard providers should be able to deliver targeted support because only they, from one perspective, will know enough about the customer or member to do so. However, that is unlikely to be what the FCA is after, and there will be plenty of contrary views.

It seems likely that targeted support will be delivered by product providers keen to retain or cross sell to customers. They will be able to help customers to make better use of products by segmenting the customer base, developing likely scenarios for each segment and then delivering a “people like you” message accordingly. This might, for example, encourage increased contributions in accumulation or the dialling up or down of investment risk depending on age or the period to target retirement date.

It may be that adviser firms will also offer targeted support but as a gateway to further advice. The FCA has said its research showed some consumers would want to consider targeted support and may then seek further input or advice because they understand more about the choices available. However, adviser firms may also have reservations about whether the population of pension members who would benefit most from targeted support will ever graduate to more remunerative ‘full-fat’ advice. This means that adviser firms who team up with occupational pension schemes to deliver advice such as retirement advice may not choose to get the relevant permission to give targeted support. 

Issue for occupational pension schemes

The FCA says it is working closely with the Money and Pensions Service and The Pensions Regulator on these proposals but recognises there’s more work to be done on the role of trustees. So far, the signs are encouraging – the FCA is aware that it is important to ask what a reasonable expectation of trustees is, and not just what will lead to better member outcomes. The FCA also seems to accept that trustees might be well placed to provide some targeted support but perhaps not in all areas – for instance, encouraging active members to save more is more straightforward than supporting with the wide range of retirement decisions.

Trustees will need to be careful not to engage in any regulated activity – whether advice or targeted support. It can be hard to navigate the existing advice and guidance boundary, and it may be more complicated still when targeted support is introduced.

Trustees will probably defer to third party administrators or separate advice and guidance solution providers to deliver targeted support. Care needs to be taken to manage the risks of introducing members to a targeted support provider – itself an FCA regulated firm. Trustees will also, as now, need to take ownership of governance oversight of the supplier – taking particular care in areas such as data protection, lines of responsibility, potential liability and whether any regulated products are being sold through the offering.  This route raises some questions – for example, determining who would be responsible for segmenting the membership and deciding what message each segment receives.

One way forward is that targeted support ends up being delivered through member apps or portals made available by trustees to their membership – which are often provided by the scheme administrator. The challenges presented by these advice and guidance tools, such as determining who is taking responsibility and any data implications, would continue.

However targeted support is delivered, it is vital to get the communications right to ensure savers understand what they are getting and to minimise the risk of successful complaints – trustees and targeted support providers both have a role to play here.

Trustees of non-commercial schemes generally do not stray into the heavily regulated area of direct marketing - for instance targeting members for sales or messaging. However, targeted support might make this more likely. Member communications and messaging would need to be checked to ensure they do not fall foul of the Privacy and Electronic Communications Regulations. It is also important for trustees to understand the customer journeys being presented to their members via apps, portals and advice or guidance solutions. Great care needs to be taken with this sort of messaging to avoid it becoming a hostage to fortune.