By Dale Critchley, Workplace Policy Manager, Aviva
My analogy relates to pensions in two ways. The first is engagement. I have a basic understanding of how washing machines work, and an obvious problem to solve. Without any knowledge about their pensions, savers are unlikely to understand what the levers they can pull to solve a problem. An even greater issue is that without any idea of what good looks like, many will not realise there is a problem at all. The pensions equivalent of the “soggy washing moment” might come after decades of saving.
Secondly, to fix my machine, I needed advice. This was “free”, although the cost of video production will be ultimately built into the cost of the spare parts. Importantly the advice allowed me to work out whether I thought I could do the job myself, or if I really needed to get an expert in.
All of this is analogous to targeted support, a new service designed to address both issues above and enabled by regulation due to come into force next year.
Firms will be able to use the data they hold, or data they obtain from customers, to identify problems that are common to cohorts of savers. They can pre-define solutions to those common issues which are appropriate to the different cohorts of savers and deliver a recommendation about a regulated product or service that will deliver a better outcome for “people like” the saver. Firms will be able to contact savers to let them know they may have an issue, and what the recommended solution is, as well as delivering a reactive service.
Although the service would be deemed regulated advice under the current system, it will be made clear to savers what data has been used, what assumptions have been made, and that targeted support is not fully tailored, holistic advice.
Regulations require that the recommendation to savers must be about a “particular investment”. This means it must recommend an action about a specific FCA regulated product, rather than a generic action. It also means that guidance that looks like targeted support, but which relates to options within an occupational pension scheme will not be “targeted support. The FCA mention in their consultation that they may provide further guidance to trustees on what support they can provide as guidance.
Targeted support will be limited to scenarios where savers can be divided into cohorts that are granular enough to deliver a recommendation, but not so granular that the service becomes individual advice. The FCA has identified annuity purchase and pension consolidation as areas where delivering targeted support, while ensuring good outcomes for savers, may be challenging. As a result, the FCA are looking to exclude both from the scope of targeted support. Additionally, firms would not be permitted to recommend an adviser or an annuity bureau service as part of a targeted support journey, that includes annuity recommendations.
A wrinkle in the regulation, is that a general recommendation to consider purchasing an annuity – without specifying a particular product, may not fall within the definition of targeted support and so allow a trustee to refer members to an annuity bureau. Once the new regulation is implemented, further guidance or advice may be necessary to ensure compliance.
The Privacy and Electronic Communication Regulations (PECR) is another wrinkle that could prevent the promotion of targeted support services or the delivery of recommendations via electronic channels, such as email. In many cases a recommendation of an action related to a particular investment will be classified as a marketing communication. This is an area that will require clarification, to ensure firms can communicate effectively, whilst respecting consumer data preferences.
Wrinkles aside, targeted support has the potential to empower savers by helping them understand how to take positive steps to improve their financial position. For some, it may highlight the complexity of their position, and the need for an expert to deliver individualised advice. For many, a specific recommendation could increase consumer confidence enough to enable them to act independently. And who knows, once they have taken that initial action, they might feel more confident to identify and fix other aspects of their pension saving too.
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