Massive change to pension rules plotted to boost savings for millions – but experts warn about risk to savers

HOUSEHOLDS could get new support to help them boost their savings under new government and watchdog plans, The Sun can reveal.

Currently, savers who have cash with pension and investment firms can’t get any kind of help with where to put their money without paying for financial advice.

But under huge plans set to be announced by the Treasury and the the Financial Conduct Authority (FCA), financial firms will be able to provide “targeted support” to savers to help them decide where to put their cash, according to sources involved in the policy discussions.

This support will aim to increase savers’ engagement with their money and ultimately boost their cash long-term.

What do the plans look like?

It is understood the plans will allow providers to recommend products or solutions to savers based on what is suitable for “other people like them”.

The options being considered include:

• Helping customers make better decisions about products they are already in. For example, it could involve suggesting to pension savers they should change their contribution or withdrawal rates, based on other people like them.
• Suggesting a list or range of products the customer could choose from, based on other people like them, to help narrow their choices down.
• Suggesting a single product for the customer based on other people like them, in the hope this would increase the chance the customer takes action.

For pensions, one area the targeted support will focus on is auto-enrolment, sources told The Sun.

This is where savers are automatically signed up to their workplace pension scheme and contribute an amount each month.

The regulator is also looking at introducing this type of guidance for investment firms.

For investment firms, the new rules will allow them to suggest products suitable for savers based on others like them, such as ISAs or Self Invested Personal Pensions (Sipps).

The aim is to get more people investing their money rather than leaving it sitting in cash, as historically leaving your money invested over time has seen it grow faster than leaving it in cash accounts.

The FCA will launch a consultation into how targeted support could work for pension firms this winter, followed by a consultation into how this could work for investments next spring.

A consultation is where the government or regulators ask the industry that is affected by a policy change for feedback before they confirm the final rules.

The Sun understands the financial regulator is sidelining plans to introduce so-called “simplified advice”, which aimed to provide financial advice much more cheaply, in favour of this targeted support.

The FCA has been consulting on whether to introduce simplified advice, which would allow savers to get basic advice from financial firms, but is set to announce this has been “de-prioritised”.

Alongside the consultations into targeted support for investments, The Sun understands a so-called “sandbox” test will be conducted to see what kind of support works best for savers.

It is understood a select number of financial providers will be included in the test.

This will be called “policy sprint” conducted over two to three months and will test different methods of supporting customers to swap from holding their money in cash to investments.

The final rules for both pension and investment firms will be confirmed after the regulator’s consultations close and it has assessed the feedback, likely sometime next year.

An FCA spokesperson told The Sun: “We have been talking to a range of interested parties about this important piece of work. We intend to set out our plans later this year.”

The Treasury declined to comment.

Are the proposals good for savers?

The latest plans from the FCA follow a recent announcement by the Government to introduce a Pensions Bill, along with a review of workplace pensions, which will aim to add £11,000 to the average saver’s retirement pot.

Recent data suggests millions of savers don’t have enough money set aside by the time they retire, leaving many struggling in later life.

Think tank The Resolution Foundation has estimated around 13million people are currently not saving enough to meet the minimum target for an adequate retirement.

So, experts say having extra support in place from the firms managing people’s money could potentially benefit millions of consumers.

However, they stressed they will need to ensure savers still have freedom of choice and aren’t pushed towards specific products.

Tom Selby, director of public policy at AJ Bell, said: “Deciding how to save and invest can feel intimidating, so ensuring ordinary people get the best possible help with their finances is crucial.

“The regulator and government deserve huge credit for pushing forwards with these ambitious plans, which have the potential to benefit millions of Brits.”

Steve Webb, former pensions minister and partner at consultancy LCP, echoed that this is positive for savers.

“I strongly feel that something like targeted support from providers is needed, as more of us are reaching retirement age with steadily bigger pension pots,” he said.

“We have meaningful choices to make with what to do with that cash, and so few people seek or can afford full financial advice.

“I think schemes being able to nudge people based on their circumstances would be a good thing, perhaps indicating a ‘people like you’ course of action in terms of product type.”

However, Mr Webb cautioned that it is vital savers are still given the option to “shop around” and this needs to be factored into the final rules.

“There’s an interesting distinction between the provider saying ‘people like you tend to go into drawdown’, and ‘we think you should go into our drawdown’,” he said.

“While the product itself might be the right answer, there would then need to be a robust ‘shopping around’ process so savers can exercise their choice and find a better deal with another provider if they wish”.

Tom McPhail, director of public affairs at consultancy The Lang Cat, added: “The advantage of what is being proposed here is that it delivers accessible financial guidance and support to millions of people at a point where it is useful.

“However, the trade off is potentially reduced competition, as it will cement the relationship between the customer and the provider, making it less likely the customer will shop around or leave the provider.

“Then there is the risk an unscrupulous or poorly governed provider could abuse that relationship. In theory, the FCA’s new Consumer Duty will guard against this but whether that will be enough for this new government is to be seen.”