Targeted support not simplified advice please!
The FCA have issued another consultative document that attempts to help ordinary people make financial decisions (bridge the advice gap – as the regulatory parlance has it)
It has two good ideas, “targeted support” – which is what it wants pension savers to get and “simple advice” which is out of scope.
Targeted support for those in pension peril
Different approaches may be appropriate under different scenarios and there may be other options not included below. We are keen to understand which approach would be most effective in supporting customers under a targeted support regime and how this may vary in different scenarios.
a. Targeted support could help customers make better decisions about an existing product. This would help customers by stopping poor decisions.
For example, suggesting to a pension saver an alternative contribution or withdrawal rate for ‘people like you’.
This would help to avoid foreseeable harm in respect of the
product(s) the customer is already in, but it would ultimately not be able to direct to a new product, limiting its impact.b. Targeted support could go further than the above by offering suggestions about new products. For example, suggesting a short list or range of new products the customer could choose based on ‘people like you’.
This would help customers narrow down their choices further. However, there is still a risk of burden of choice for the customer, which could cause inertia.
c. Targeted support could go even further than both options outlined above and suggest a single new product the customer could choose based on ‘people like you’.
This option would narrow the choice significantly for the customer which might increase the chance that a customer takes action. However, there is also a question as to whether only presenting a single product is appropriate given the service is less bespoke than simplified or holistic advice. That is, it could make the suggestion be seen as personal to ‘you’, rather than for ‘people like you’.
Targeted support is about intervening when help is needed. For most savers – help is needed not in saving but in spending the savings. It’s needed to stop scamming, it’s needed to make choices simple (pathways) and it’s needed to provide a default, where the general need is for a lifetime income (a pension).
Simple for savings products not pensions
Alongside wealth accumulation products, some respondents to CP22/24 requested that we expand the scope of a simplified advice regime to include pensions decumulation products, such as annuities, uncrystallised funds pension lump sums (UFPLS), and flexi-access drawdown (FAD).
However, we think that these are financial decisions which may typically be too complicated to incorporate into a simplified advice regime.
Drawdown decisions, for instance, may have income tax and inheritance tax planning implications, or complicated interactions with means tested benefits. So we propose that all pension decumulation decisions are excluded from simplified advice.
This is basically making pensions a fiduciary business where we rely on the judgement of others to get us into the right place. Targeted support is about the fiduciary knowing best and excludes simple advice because there is an advice gap that can’t be bridged – where pensions are concerned.
I think this is right. How people choose to spend their pension savings is a matter for individuals but we have got to be clearer about what the purpose of pensions is. It is to provide dignity in retirement through the provision of a lifetime income (we can worry about the exact words later). So for all the complexity for rich people around inheritance tax , and poor people about benefits, most people want pensions done for them.
Support can be targeted at those who need it while most people should be allowed to get on with enjoying their retirement without botheration.
Simple advice , looks like a way for the FCA to reintroduce ad valorem fees through cross-subsidised product sales. Pension savers do not need to be pestered by sales people. That certainly would be botheration.
Keep salespeople out of pensions
When I started my career selling financial products , I was allowed to sell savings products but not pensions which were considered too hard for someone with a week’s worth of sales training.
This turned out to be a good move as even in the early 1980s, pensions were done for you. I remember my Dad asking me whether he should buy some added years in his pension scheme, I didn’t know where to start and suggested he might like to buy a £25 pm whole of life plan instead.
If you want help on pensions , you need advice. You do not need advice to know that “tax free” is better than “taxed” and that pension that go up every year are better than those that don’t.
If you want to swap your increases for cash, or swap y0ur pension for a DIY Sipp, you need advice. If you want to drawdown your pension to your personal specification , you would be well advised to pay for proper (not simplified advice).
If you don’t want to do anything but sign a form to get a pension , then you should feel that whether you take a quarter as cash or not, you have got a good deal.