The UK pensions landscape is entering a period of major reform, with new legislation and regulatory initiatives aimed at improving outcomes for savers.
Earlier this year, the government announced its Pension Schemes Bill which is currently progressing through the legislative process. The bill aims to tackle underperforming pension schemes, consolidate small pension pots, and ensure that individuals approaching retirement are offered clear, default options for converting their savings into income known as ‘guided retirement’.
Alongside this, the Financial Conduct Authority (FCA) unveiled plans to introduce a Targeted Support regime. This reform would allow authorised firms to provide tailored suggestions to groups of individuals with similar financial characteristics – bridging the gap between generic guidance and regulated financial advice. The goal is to make pension and investment support more accessible and affordable, with legislation and final rules expected by the end of the year.
To further address long-term challenges, the government has also reinstated the Pensions Commission. Its mandate is to address growing concerns that future retirees may face significantly lower pension incomes than today’s pensioners and to recommend reforms that ensure a fair and sustainable retirement system.
Jonathan Watts-Lay, Director, WEALTH at work, comments:
“We welcome the government’s renewed focus on pension reform. These measures have the potential to significantly improve outcomes for savers and ensure that retirement planning is more accessible and effective for all. However, as always, the devil is in detail, and we believe further consideration is necessary to ensure the right support is provided to help all individuals.”
On the topic of guided retirement proposals, Watts-Lay warns:
“There is a real danger that automated default pathways could lead to a repeat of the issues seen with annuities pre-Freedom and Choice, where individuals defaulted into their providers annuity without exploring better options elsewhere.”
He explains; “Retirement needs are highly individual. Some may have significant other assets, others may rely solely on their pension. Health, life expectancy and income preferences vary widely. A generic default solution cannot cater to this spectrum of needs and may result in tax inefficiencies and suboptimal income.”
Regarding Targeted Support, Watts-Lay adds:
“It could help savers to get started and bridge the advice gap and may also encourage disengaged investors make active choices and get better value from their investments. Targeted support could also help people to understand what is required to generate a desired level of income throughout retirement. However, by design, it’s not holistic and won’t consider all accumulated wealth or personal circumstances. For those with larger sums, regulated advice will remain essential, especially when planning for retirement income which can be complex.”
He continues; “Understandably, there are concerns that targeted support could become targeted sales. Consumer protection is key, and we look forward to reviewing the regulatory framework. The challenge will be balancing protection with practicality – too much regulation may deter firms from offering the service, while too little could risk mis-selling. Defining consumer characteristics and matching them to solutions will be critical and could become a legal minefield for pension trustees.”
Watts-Lay concludes; “At WEALTH at work, we already support hundreds of organisations in helping their employees improve their financial future through financial education, one-to-one guidance and investment advice. When people are informed, they make better decisions – whether that’s increasing pension contributions, building financial resilience through Workplace ISAs, or seeking investment advice at retirement. We look forward to supporting our clients through the successful implementation of these reforms.”