A HUGE change to pension rules is due to come into force next year and it could give a £2,500 boost to millions.
The Financial Conduct Authority (FCA) said it is “very confident” new support proposals – which aim to help households boost their savings – could come into effect in just a matter of months.
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Nike Trost, head of asset management and pensions policy, told listeners of the TPR Talks podcast she was “very confident” the changes would come into effect by the end of the year or early next year.
Under current rules, those who have cash with pension and investment firms can’t get any help with where to put their money without paying for financial advice.
But new plans, laid out by the FCA and the Treasury, mean that financial firms will be able to provide “targeted support” to savers to help them decide where to put their cash.
This could also include people who may be currently drawing down on their pension unsustainably, not saving enough for retirement or who have excess cash sitting in a current account.
Nike said it is about “consumers being offered really good product choices to choose from in a really simple way.”
And now experts believe the move could also help savers boost their income by £2,500 a year too.
Karen Barrett, founder of Unbiased, said: “Previous studies have shown that expert financial advice increases the average person’s retirement income by £2,500 per year.”
“Britons have over £430billion sitting in savings accounts, which could be invested to grow faster.”
She added: “Without knowing the final details from the FCA, we are confident that millions of UK households could benefit from access to high-quality financial advice, which they are not getting today.”
There are about seven million adults in the UK with £10,000 or more in cash savings who may be missing out on the benefits of investing throughout their lives, according to the FCA.
Moreover, only 9% of UK adults received financial advice about their pensions or investments in the last 12 months.
Separate, DWP research has also suggested that 38% of the working age population are under-saving for retirement.
The aim of the support is to help savers engage more with their money and help boost their cash long-term.
A consultation on the scheme launched back in June and is set to end on Friday, August 2025.
What will the changes look like?
Banks will let customers know when there is an opportunity to move their money from a low-return current account to higher-performing stocks and shares investments.
The firms will need to explain the nature and limitations of the service they are providing.
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (SIPP) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - Final salary pension – This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year upon retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you’ll need 35 years of National Insurance contributions to get this. You also need at least ten years’ worth to qualify for anything at all.
- Basic state pension – If you reach the state pension age on or before April 2016, you’ll get the basic state pension. The full amount is £156.20 per week and you’ll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.
This will help customers to understand they are not receiving a more personal type of advice.
Customers will be warned of the risks when investing, which will help them to judge where best to put their money.
They will also be guided through the different investments on offer, which often puts savers off investing.
Firms that offer targeted support will be subject to special conduct standards, which are designed to protect customers.
They will need to apply to the FCA or the Prudential Regulatory Authority (PRA) before they can offer targeted support.
This will give both regulators the chance to check that a firm meets the criteria to offer the support.
Who will benefit from the changes
The FCA said three groups of people will be helped through the changes.
These include people who are not saving enough for retirement.
Through targeted support firms will be able to suggest an alternative contribution rate.
Those who are struggling to access their pensions will also receive support.
Currently, firms can give savers factual information about their retirement options.
But under targeted support firms will be able to suggest a course of action, such as a certain investment product.
Elsewhere, the plans will also allow firms to help those with substantial savings to consider investing.
It will be able to suggest investment products to help customers get started.
