Demand for targeted support at retirement

The pension freedoms have given people the flexibility to manage their pension savings in a way that works best for their individual circumstances and goals. Yet less than a third of those accessing their pension plan discuss their options with a regulated financial adviser.

With the UK government and the Financial Conduct Authority (FCA) currently consulting on how to bridge the 'advice gap' between basic information and tailored advice, new research shows that pension savers are interested in being given more information in the form of targeted suggestions.

'People like you'

The FCA has proposed a new regulatory framework that would enable firms to suggest products or courses of action based on a target market the consumer has been identified as belonging to, rather than fully individualised support. Under the targeted support proposal, a regulated firm could:

• Describe to a customer the different methods of accessing their pension and, based on a limited number of questions, identify a product designed for the needs, characteristics and objectives of a target market that aligns with the customer's answers (i.e. 'people like you').
• Highlight to a customer holding excess cash in their bank account that inflation could erode the value of their savings, describe the value of investing, and suggest products based on an understanding of the customer's target market (i.e. 'people like you').

Research by pensions, savings and investments firm Aegon reveals that 64% of individuals aged 50-59 would be interested in receiving targeted support suggestions like this from regulated firms. The enthusiasm is even higher among younger clients, with 71% of those under 50 finding targeted support either 'somewhat appealing' or 'very appealing'.

Aegon wants to see such support offered proactively, rather than only when requested by consumers who often don't know what support they need and when.

Clear demand for financial guidance

"Our latest Second 50 report shows that the combination of ongoing challenging economic conditions, increased life expectancy, and the need for individuals to manage their own finances has made regulated advice more crucial than ever and must be encouraged to thrive," said Steven Cameron, pensions director at Aegon. "However, millions find themselves caught between the 'rock' of comprehensive financial advice which can seem expensive, and the 'hard place' of unengaging generic information.

"Our research highlights a clear demand for more personalised financial guidance, with 64% of individuals citing they would find the concept of targeted support appealing. Within this, it's essential that our industry can offer a range of tailored support solutions that reflect the different financial situations of individuals as they approach retirement."

Well-informed decisions

According to FCA data published last month, there has been a slight decline in the use of financial advice at retirement in the past year.

In 2023/24, 30.9% of pension plans accessed for the first time were accessed by plan holders who took regulated advice -- down from 32.9% in 2022/23. This means that more than two in three at-retirement decisions are taken without advice.

"The drop in the use of financial advice increases the need for the FCA to complete its review of the boundary between financial advice and guidance," said former pensions minister Sir Steve Webb, who is now a partner at pensions consultancy LCP.

"Hundreds of thousands of people take their pensions each year with no advice, and much more needs to be done to help them make well-informed decisions."