Guided retirement and helping savers make the right decisions

Patrick Coyne, Interim Director of Pensions Reform at TPR, and Nike Trost, the FCA’s Head of Department - Asset Management and Pensions Policy, discuss how trustees can help ensure guided retirement makes a difference to savers by developing a much deeper understanding of the diverse needs and profiles within their scheme membership. 

Transcript

Host – Dan Menhinnitt 

Welcome to TPR talks. I'm Dan Menhinnitt, media officer at the Pensions Regulator. In this episode I'm joined by Patrick Coyne, TPR’s interim director of pensions reform, and Nike Trost from the Financial Conduct Authority. We'll be exploring two major proposals shaping the future of retirement: guided retirement and targeted support. These initiatives aim to help support savers as they approach retirement especially in a landscape where confidence and clarity are often lacking.  

We'll also unpack the advice boundary. What trustees can do to support members, and where the line is drawn between guidance and regulated advice. And we'll be discussing the live targeted support consultation and why it's so important for schemes and trustees to engage now. Nike, could you start off with a simple explanation of what guided retirement and targeted support are, and how they might work together? 

Nike Trost:  
 

There are two really exciting propositions being developed at the moment. One is what the government is doing through the pension bill, introducing the idea of guided retirement, which is all about offering savers defaults at the point they reach retirement. And Patrick, no doubt you'll expand on that a bit more. And then we, together with the Treasury, are doing work to develop something called targeted support, a new form of support that will help people have a recommendation based on limited information and that we think is really going to be available as kind of mass market offering in the future. 

Patrick Coyne:  
 

Yeah, I'd say on guided retirement. I mean, this is really a savings system turning into an actual pension system. And I see it a bit like, a bit like a retirement satnav. And it's guiding people to write the right destination for them, but allowing them to take a different route if they want to. And so that it that means it's every member, every person saving into a DC pension has access to a default retirement pathway and that strong safety net, and that with targeted support, what you're getting by a regulated activity is, you know, a provider often offering that more personalized help. 

Nike Trost:  
 

So targeted support is intended to become a new type of regulated support where firms can give recommendations really for groups of people based on limited information, but through that make it much more scalable and make it probably available to a much broader range of people than what is currently available in the market. To understand targeted support, it's probably worth recapping what is available now. 

At the moment, a consumer can take financial advice. I think that's very well understood concept, provided by an FCA regulated advisor to provide advice. The advisor will look at all the consumer's financial circumstances and then give a personalised, a fully personalised recommendation. Or there's quite a lot of what we call in regulation guidance available in the market. So essentially facts and general information that will help a consumer understand their options but will not help them make a decision in terms of a specific product. 

Now, in our view, that leaves a real gap in terms of support, because when you look at the data, only about 9% of consumers received regulated advice in the year up to May 2024. Lots of people turn to unregulated sources of “financial advice” in inverted commas. So, you know, looking at social media, asking friends and family, sounds that can be very good, very useful. 

But actually there are also some areas where we have significant concerns. And particularly when you look at the younger generation amongst investors aged 18 to 34, about 45% use social media to research investments. That's quite a lot in my mind.  

So what we have here is a landscape where basically there's a real gap in what is available, and targeted support is intended to fill that gap, how people get support that is tailored to them, even though it is not fairly personalized based on characteristics they have. Now in the context of pensions, there are a few examples that we might get into where that might be really useful. 

But for example, that's a point of decumulation. So when you think about how to take an income or even throughout your savings journey. Now that differs from the guided retirement proposals that DWP is working on, because the work around targeted support is really a type of regulated service, it is likely to be provided by commercial firms, and it really assumes that you have a certain amount of engagement with said customer. Guided retirement is all about providing defaults to those that save best your pension scheme. 

Patrick, you might expand on that because I think in the context of trust, we're probably going to see some really interesting proposals here. But really the idea behind it is that a consumer that is auto enrolled into a workplace pension scheme will, at the point of retirement, have an option that gives them an income in retirement. So that's quite different to targeted support, which is more about engage them in that decision making. But they can work very well together.  

Patrick Coyne:  

Yeah, I'd agree with that. It really turns the savings system into an actual pension system. So it's guiding people into a good default that's right for them. I think that there's a lot of detail here to be worked through during consultation, particularly in the secondary legislation. But at its core, it's around trustees providing one or more default retirement income solutions that members can opt out if they prefer something else. 

And I think the overarching goal here is to just reduce the number of people making poor choices. We know that people are cashing out their entire pot or perhaps staying in unsuitable investment strategies. We think they need just a bit more help. And Nike says, I think these are quite complementary policies. So you've got guided retirement. Think of it as that default retirement pathway, that safety net. 

And then targeted support, you know, allows, you know, a kind of regulated activity, whether that's getting up an FCA regulated partner to offer that more personalised help to help people with their individual decision making. And I think it's really important to bridge the advice gap here. And so I think the two of them can work quite well together.  

Host:  

Why are these proposals so timely now. Why are we working on things like targeted support and guided retirement presently?  

Patrick Coyne:  

I don't think anyone's saves into a pension thinking about getting a pot at the end of it. 

I think they're thinking that they're going to get something that's going to provide them with the sustainable income to last them through their older life. But we know people's lives are really different. People want and need different things. So if you've got a house, a partner, ill health, that's all going to impact what you want and need. To my mind, that's why generic solutions that just have basic signposting to off the shelf drawdown products probably, probably won't cut it. 

And I'd really like trustees to consider how different defaults will suit different types of savers. But by that I mean looking at the membership as a whole and having a number of defaults that are appropriate for different cohorts of members and, you know, a range of options for those who want to choose a different path. You know, people ask me, do I have a number of defaults in mind or cohort types? 

I think my answer to that is not really, but I'd love to hear from trustees about how they're finding out more about their members and what they think is essential to designing a good strategy for retirement. And that's going to be a really big focus for us via our supervision and policy over the next few months and years. 

And so you can tell us what you think.  

Host:  

So this is an opportunity for trustees to start shaping what's happening. And the targeted support consultation is live at the moment. Nikeck, could you tell us why it's important for trustees to get involved in that and what you hope might come as a result of the targeted support consultation?  

Nike Trost:  

So I think the targeted support consultation is really relevant for trustees because this new service, if it goes live, and I think we’re very, very confident that that these proposals will come into effect towards the end of the year, early next year, and then that providers will actually offer these services, this kind of new support will really change what is available to your members in the market. And I think it's really worth thinking through how that might help your members and how that can interact with the guided retirement packages that you might put together within your trust. Patrick said this before, but the two are really complementary, and I think it's really exciting that we had a moment where in a year, or a couple of years, we're going to have an entirely different retirement offering for people who have a DC part. 

And that's not a day too soon because we will have more and more savers enter retirement with their DC pots, we should say, being their major source of income. I mean, one thing I would say is that targeted support would also be an opportunity to help people look across their pots, because that's more difficult for trustees to do because they're going to be focused on what's with that specific trust. 

But I think it's another reason why these proposals are so complementary.  

Patrick Coyne:  

Yeah, I'd agree with that, Nike. And I think it's probably worth restating that with targeted support, it goes much broader than just pensions.  

Nike Trost:  

Yeah, absolutely. It's about pensions and investments. So I would say I see some really strong use cases in the world of pensions. 

You know, that retirement decision in particular, in the run up to that, it is a moment when everyone, whether they've actively engaged with their savings or not, has to make a choice about how to generate an income.  

Targeted support will give you more help with that choice. Guided retirement will give you easier options with what you do with us with your money. 

Host:  

Should we move into discussing data now? Because from what I've heard from both of you, it's going to be quite important that people providing this guidance or these decumulation thoughts, that they understand their members is that is that right? Is that going to be a challenge for people understanding that savers? 

Nike Trost:  

So look, data is something we thought about a lot when we designed the conduct standards for firms delivering targeted support. 

In the financial advice journey an advisor will go through all of someone's data points. The thing about targeted support is that it is supposed to be about limited data points and making a recommendation, but it's really about thinking through what are the pertinent data points that help you as a firm design products that can meet the needs of those different cohorts. 

So it’ll be really important that providers think through what data they use, what data they need to have about their savers, and how they then use that both in designing the product and also in approaching the right consumers in the right situations.  

Patrick Coyne:  

I think data is the foundation for everything. And if we look across all the reforms in the pension Schemes Bill, you can see that there's a demand and a necessity for good quality data.  

You know, value for money, a big part of that is the data standards exercise. Small pots, this work is reliant on effective data. Then you've got guided retirement. So good data giving you the opportunity to really understand your membership and design the defaults, tailored comms to make sure that people get the retirement that they want need. That's why you probably will have noticed over the last few years that improving data standards has been a big priority for us. 

I think dashboards was a catalyst for a lot of improvement, but we're starting in the trust-based world in some areas from quite a low base. You know, our research showed that 1 in 6 schemes still had data and in some kind of paper form. So we've got a long way to go.  

Nike Trost:  

I think that's true in the contract-based world, as well. 

You know, I think we all know that in the world of pensions, really understanding your customer base, really understanding your members in the context of a trust is still something that firms and trusts have a lot of work to do on, but it is becoming more and more important as we move into this world where you're designing retirement solutions, because needs are quite different for different cohorts in retirement. 

Patrick Coyne:  

I agree.  

Host:  

Do you both think that pensions dashboards might also increase people's engagement with their pensions, they’ll have the opportunity to look over the different pots? Do you think that's going to have an impact on, you know, them calling their trustees and asking them how well their investments are going? Is it going to see them asking questions about what they should do in retirement? 

Patrick Coyne:  

I hope so, Dan. I hope that actually I think it's kind of a necessary precursor to sort of good decision making, really. You've got to start with going, what have I got? And then what do I do with it? And, you know, these things are really important. And actually sometimes I think with, you know, there's a big reform agenda that's going on at the moment. 

And you can take a thin slice approach where you're going and looking at these things individually, but they're all part of a whole. Now, how is it that we build a system that really works? And, you know, dashboards is clearly going to draw a focus on what people have got and whether they think it's enough and will prompt people to think about actually what kind of retirement do I want. 

And it's for us to not just make sure that that information is, you know, accurate and updated and the system works, but actually that we are there and ready to help people when they start to show more of an interest.  

Nike Trost:  

Yeah, I couldn't agree more Patrick. I think it's so important that when people look at the dashboard and might have questions, it's possible to support them with those questions.  

Host:  

Do you think providers are ready for that increased potential increase in engagement now, or is there still work to be done in that space?  

Nike Trost:  

Well, I think as firms are thinking through developing their targeted support offering, I'm sure a lot of them are thinking through what, how might the dashboard in due course affect what kind of questions consumers are asking? 

Patrick Coyne:  

Yeah, I'd agree with that. And you know, more generally, this has been something that many in industry have been working over many years. And as the focus turns towards, you know, at retirement planning, a big focus on that, brought in part by the bill and the FCA’s work on targeted support, it's the natural conversation that you would expect to be having a trustee board, some within the commercial, to make sure that you're ready. 

Host:  

So recently, TPR has been calling on the pensions industry to look at becoming more innovative. Is there any support out there for schemes who are looking at what they're providing, and want some help to make sure that it would fit within the current regulatory structure?  

Patrick Coyne: 

Yeah, I think for the first thing that we can do as regulators, and certainly from TPR’s perspective, is to be really clear on our regulatory expectations. 

And again, I'd say that is an important precondition for innovation. If I was a market participant and I was going to invest a significant amount of money in discovery about new product offers, I would want to know what the guardrails are before I started to invest.  

And actually, that's one of the things and one of the reasons the drivers behind us setting up a new innovation service. What we really want to do here is not just kind of share best practice that we see in the marketplace and try and bring people together to kind of hack through interesting issues, but also allow an opportunity for people just at that early stage discussion with us in a kind of protected manner, in an informal way, to just understand where our kind of risk tolerances are. It's not a kind of formal test and learn environment, but one of the things, and actually, I'm really pleased Nike is on the call, just so, you know, really pleased that the FCA have, decided to help us here and have a really close connection with their innovation services, things like their regulatory sandbox and digital sandbox to enable that later stage testing. 

And I think that's a kind of really good joint endeavour, you know, using the architecture that they've built up over a number of years to try and return to the pensions challenges. And look at this holistically.  

Host:  

Is innovation a key consideration for the FCA as well Nike?  

Nike Trost:  

Yeah, definitely. As part of the developing the targeted support proposals, we actually run a sprint that was focused on investments rather than on pensions, but it was a really interesting and fun way of getting into just testing out what a firm might be able to build. 

So it's a really useful experience. I think firms found, not just for us, but actually I think firms found it very useful. And that's kind of innovation in the way of working.  

But there's also a lot of focus on innovation in, in, in products. I mean, I think this whole drive to get to a more retirement solution is naturally going to change the range of products that are available for retirement and I think we're all looking to see how the market evolves there.  

Patrick Coyne: 

I agree with that. There's something about just bringing people together. You know, there's a lot of people who have a lot of good ideas in the marketplace. And, in some sense, there's a kind of crying out for forums that, to say like, this is a big problem, how do we work through it together? And I know from, you know, we TPR and the FCA did that a lot in the policy development space. 

I think about the number of times we've done that over the years on value for money Nike, and it's just it's definitely something about just bringing together people to say, what is it we're trying to achieve here and how best we can we go about it.  

Host:  

And obviously another way, for people to have their say and to put forward ideas at the moment is the targeted support consultation. Nike, what are you hoping to learn from people that take part in that consultation?  

Nike Trost:  

Yeah, absolutely. I mean, it is our second consultation. We published a consultation specifically on pensions last December. We had lots and lots of feedback to that and really good engagement. Then the consultation we put out in the summer is a consultation that gives the actual detailed rules. 

So at this stage we are really interested in specifically understanding whether there's something in the detailed rules that works or doesn't work. We certainly know that there are some concerns, around PECR that are still outstanding. We're having a lot of discussions with firms around how the FOS will adjudicate in certain situations, but we are certainly interested in just understanding what works and what doesn't work in the regulatory framework. 

Host:  

TPR and FCA are both very interested in innovation at the moment, but what is it that has caused innovation to stall in the past? Patrick, what's your view on that?  

Patrick Coyne: 

I think, well, within decumulation and at retirement in the trust space world, some of it's probably down to the fact that it's a new market. So with AE, you've massively expanded the base of saving. 

But pot sizes were pretty small, especially for those older savers that were actually coming up to retirement. You know, if you look at the average pot size now it’s still only around 8-7,000 pounds. So for many, there's probably not a huge amount of commercial sense in developing these products or actually kind of utility. 

But at the smaller end of the market, you've also got the problem of, you know, really old legacy systems and poor data, which meant that progress was really slow.  

But what I would say is, the time's now right? You've got new regulatory requirements, which means, you know, entities have to do guided retirement, but also, it's going to make commercial sense for those master trusts. 

And so, you know, I welcome discussion with innovators on what they think are the necessary preconditions. And to make sure that we work, work with the market in a really coherent way to implement the reforms that are coming up in a way that best benefit savers.  

Host:  

Nike, does that chime with what you say from the FCA point of view? 

Nike Trost:  

I think in the FCA regulated world, the kind of support that we're currently proposing under targeted support is something that at the moment would fall to be advice, and in the whole advice conduct requirements, and I think that has, stopped people from maybe offering that to the broadest possible customer range. And I talked earlier about that binary situation of advice and guidance. 

Clearly, people offer a lot of guidance, firms offer a lot of guidance. But we’ve all had to think radically differently to get us to a place where we have this new kind of service available.  

Host:  

Patrick, and then Nike, looking ahead, what does success look like for the industry in delivering better outcomes for savers in decumulation? 

Patrick Coyne: 

Well, I think without this intervention, we've got a lot of people heading towards quite an uncertain retirement. The data that the government released alongside their new Pensions Commission showed that over 14 million were heading for, you know, under saving for older life. And I think with all of these reforms, the goal has to be that people have enough income to support themselves and older life and that they aren't unsupported in their decision making, because this is such a difficult problem. 

Nike Trost:  

Yeah, I agree, I think there being more support available for consumers both in their savings journey and importantly, at the point of retirement, that has to be the success we aim for, and very much them being offered really good product choices that they can choose from in a really simple way, not choose individual investments, not having to kind of engage with some of these really complex questions on how to think about your portfolio, but easy, ready-made solutions that take you through your retirement. 

Host:  

Thanks for listening to this episode of TPR Talks.  

We've heard how guided retirement and targeted support are set to reshape the way savers approach retirement and the vital role trustees and schemes will play in helping members make informed decisions.  

As Patrick and Nike have highlighted, the scale of the challenge is clear, but so is the opportunity. With a live consultation on targeted support underway, now is the time to engage, share insights and help shape the future of retirement support. 

If you're a trustee, scheme provider or pensions professional, we encourage you to read the consultation documents, consider your documentation strategies and think about how you can support better retirement outcomes. Until next time, thanks for tuning in.