I heard the perfect example last week for highlighting why our industry needs to do more to help consumers understand and make decisions over their pensions.

We were in a room packed with 30 people who joined our new Consumer Advisory Panel, brilliantly pulled together by Community Research. One of the panel explained that he had approached a financial adviser to get advice around his impending retirement and pensions. They declined to help, as his savings weren’t sufficient for it to be worth them working with him. He had turned to Pension Wise, the government funded guidance service. He explained that they gave him two options of what he could do, an “A” and a “B”. But they couldn’t tell him which one was the best route for him to take. So he hasn’t taken either option. He’s in his mid-60s and he said the best decision he has taken so far was to reduce his hours to 3 days a week at work.

Decision paralysis

I’m the first person to argue that working part-time in your 60s can be a great thing to do, on many levels. But he is in decision paralysis, and he doesn’t know where to turn for help.

Another panel member explained their confusion, saying that if you are getting a mortgage or an ISA that it’s easier to evaluate what the best option is by yourself, it’s quite simple (he said) you are looking at the best interest rate, plus maybe one or two other variables, but pensions are more complicated, and as with any investments there is uncertainty.

Without additional support people risk making uninformed decisions which do not reflect their circumstances, preferences or best interest.

What could Targeted Support offer consumers?

Recent research for the FCA on the Advice Guidance Boundary Review found that the concept of Targeted support is welcomed by consumers and “fills the gap between customer support expectations and reality”. Moreover it is actually what they “expect from providers particularly at retirement, as part of their duty to inform, guide and support decision making.”

Who could Targeted Support help?

Lots of us, hopefully. 3 out of 4 people aged 55-64 (ie at key point of accessing pension wealth and making retirement income decisions) do not get independent financial advice, relying instead on information and generic guidance. The opportunity for Targeted Support is to improve the relevance and specificity of the information providers, such as pension companies, can give these customers.

Our background research highlighted that this is not a niche problem. The mass market consumer, whose only other real asset beyond their pension is their home, is likely to be at greatest risk of harm from decision making without more support.

But the path to progress is rarely straightforward

The FCA consumer research highlights some really important considerations and potential challenges, including;

• Consumers particularly welcome Targeted Support when they see it as preventing foreseeable harm, but many are more sceptical about the commercial motives of providers. For example they were not surprised to hear that providers might suggest higher contributions or lower withdrawal levels.
• Engagement is likely to be low when participants expect bad news, and in those circumstances Targeted Support will likely struggle to cut through.
• People over-estimate the quality and extent of data that providers hold on them. There is willingness however to share data when consumers see how that information will be used to provide a more targeted suggestion that would benefit them.

So trust, the ability to cut-through at the right time and to encourage information disclosure are going to central to Targeted Support’s success. Alongside this is the important task for providers of identifying and defining the customer segments (and required data points) that will form the basis of useful suggestions that deliver better outcomes for people in similar circumstances.

Our newly convened deliberative panel will help shape how Targeted Support could be designed to deliver better consumer outcomes and bring a consumer perspective to these challenges, providing a greater sense of who Targeted Support can help, when and how.

We are inviting stakeholders from across sectors to engage with the panel, whilst government and the regulator are shaping these potential changes and will share the conclusions and recommendations publicly.

To find out more read What role could Targeted Support play in supporting consumers at retirement?.