On December 12th 2024 the FCA published its proposals laying out how pension providers would be able to offer a targeted support service for consumers, to “help them make better decisions about their pensions.” These proposals mark the first step in the regulator’s Advice Guidance Boundary Review (AGBR).
‘Targeted support’ aims to bridge the gap between full financial advice and more generalised guidance. The regulator says this will initially be offered to pension customers as this is where it has identified the greatest need for more support around decision making.
With the pensions time bomb ticking down, the recent proposals from the FCA into how it will be tackling this key issue is reassuring. Retirement adequacy is a critical topic for government and consumers - more must be done to support customers in preparing for a retirement that offers them the lifestyle they desire. Targeted support is a welcome addition to the shifting pensions landscape.
What does targeted support look like?
The proposed framework encourages firms to develop innovative, scalable support services while maintaining necessary consumer protections and fostering market competition.
The Design & Delivery process
Pre-defined scenarios:
Purpose: Firms are expected to identify specific scenarios where offering targeted support can lead to better consumer outcomes. These scenarios address common decision points or challenges that consumers face regarding their pensions.
Examples: Potential scenarios where targeted support might be provided include low contribution rates during accumulation, unsustainable withdrawal rates during decumulation, confusion about how to access retirement income, or inefficient investment choices.
Consumer segments:
Purpose: Firms should design targeted support around groups of consumers who share common characteristics. This segmentation allows firms to tailor their suggestions more precisely, leveraging shared traits among consumers.
Identification: Consumer segments are defined based on characteristics that are relevant to the identified scenarios. For instance, segments might be based on age, risk appetite, or retirement goals.
Ready-made solutions:
Purpose: Once scenarios and consumer segments are defined, firms create ready-made solutions that align with the characteristics and needs of each segment within a given scenario. These solutions offer specific, actionable suggestions to help consumers make informed decisions.
Types of suggestions: Suggestions can include changing contribution rates, selecting specific pension products, or adjusting withdrawal strategies. They are crafted to deliver better outcomes by addressing common needs within a segment rather than personalised advice.
Key considerations for firms
Better outcome threshold: The framework requires firms to have reasonable grounds for believing that their targeted support will result in a better outcome for consumers than if no support were given. This is judged at the design stage and impacts scenario and segment definitions and solution development.
Verification process: When delivering targeted support, firms must verify that a consumer fits within a pre-defined segment. This involves using limited, relevant data to ensure the proposed solution is suitable for the consumer’s segment, while also considering any individual factors that might make the standard suggestion inappropriate.
Consumer understanding: Ensuring that consumers understand the nature, scope, and limitations of the targeted support is crucial. This involves clear communication and disclosures at key touchpoints throughout the consumer journey, emphasizing that the support is based on shared characteristics rather than individually tailored recommendations.
Review and adaptation: Firms must regularly review and potentially adjust their scenarios, segments, and solutions to ensure they remain relevant and effective over time. This includes responding to changes in consumer behavior, market conditions, and regulatory requirements.
All roads lead to data
The only way for firms to develop and implement targeted support successfully is through data. Pensions are one piece of the puzzle and must be considered in the context of someone’s wider financial world. Open Finance, the emerging Smart Data economy and Commercial Pensions Dashboards will be vital in ensuring consumers are making informed financial decisions. Utilising their entire assets and a clear understanding of lifestyle for each individual has never been easier or more important. Firms must embrace a data-driven approach to navigating this new regulatory landscape.
Open Finance technology is perfectly poised to support the delivery of targeted support at scale by segmenting customers, automating product suggestions, and ensuring transparency through auditable decision trees - helping you to capitalise on the new framework and drive increased investing from a wider audience.