A new era in support for decisions on pensions?

The FCA published their latest consultation paper CP24/27 “Advice Guidance Boundary Review – proposed targeted support reforms for Pensions” on 12 December 2024. The FCA’s proposals aim to bridge the gap between financial guidance and advice for pensions, offering Targeted Support to help consumers make more informed decisions about their retirement savings, without providing a full personal recommendation.

The proposals recognise that the majority of consumers do not have cost effective access to full financial planning which would give them a regulated personal recommendation. However, they still need more support than what the current regulations can give them under the heading of “guidance”.

Implemented well, this could be the biggest change in the advice landscape for a generation. This could improve outcomes for many more consumers than are currently able to cost effectively access advice. With any change of this scale there are implementation risks, both in the design of the support and the understanding and accessibility of the support by consumers.

The approach proposed by the FCA in relation to Targeted Support

The FCA have said in their consultation paper:

“We propose that, prior to the delivery of Targeted Support, firms must take the following (internal) steps:

1. pre-define particular scenarios where customers could achieve better outcomes which could trigger the delivery of Targeted Support
2. pre-define consumer segments for whom better outcomes could be achieved in those scenarios and decide what information would be needed to determine whether a consumer fell within a consumer segment
3. establish ready-made solutions to deliver better outcomes for the consumer segment in the relevant scenario”

From previous discussions with pension providers the FCA consultation paper highlights the following possible pre-defined scenarios:

“Firms suggested the following examples of scenarios in which they might provide Targeted Support:

• inappropriate investments, including cash investors
• low contribution rates
• consumers not maximising employer contributions
• consolidation
• full encashment
• taking full tax-free cash
• taking income in a way which is tax inefficient
• uncertainty about how to take a retirement income
• taking unsustainable levels of income drawdown
• reviewing previous drawdown decisions in response to a change in circumstances”

The FCA has proposed the following for the delivery of ready-made solutions to the consumer segment.

“During the delivery of Targeted Support to the customer (consumer-facing actions), we propose firms: 

• identify that a customer falls into in a pre-defined particular scenario 
• verify if the customer can be appropriately placed in a consumer segment and provided the ready-made solution”

The verification process is not about conducting an individualised assessment of the consumer. Instead, we propose that firms will check that customers align with the common characteristics of the pre-defined consumer segment and that therefore the ready-made solution is appropriate. In other words, we anticipate that by implication of aligning with a pre-defined consumer segment and scenario, the associated ready-made solution would be expected to deliver a better outcome for the customer than if Targeted Support was not provided.

But firms should still consider the delivery of better outcomes when undertaking this process, specifically where they have, or become aware of, information to indicate that the provision of the relevant suggestion would not in fact achieve a better outcome for that customer. In this case, a firm could not provide Targeted Support. However, as noted below, this should not involve a full fact-find as undertaken in holistic advice.

Quantitative versus qualitative delivery approaches

The ready-made solutions will in effect become heuristics or rules of thumb for managing pensions for specified consumer segments. The dangers with rules of thumb is that they can be subject to our own unconscious biases and may persist in the collective consciousness for much longer than they are valid when circumstances have changed.

We believe that the ready-made solutions should be objectively justifiable, that is, quantitatively tested with the data or pseudo-data from the consumer segment.

Ready-made solutions should also be regularly reviewed and updated when situations change. Market conditions and taxes do not stay the same over time and the ready-made solutions would be expected to change. This change over time is not a weakness of the original ready-made solution, rather a strength of the ongoing proposition.

Verification processes

The FCA states “The verification process is not about conducting an individualised assessment of the consumer”, but also that “where they have, or become aware of, information to indicate that the provision of the relevant suggestion would not in fact achieve a better outcome for that customer” the firm should not provide Targeted Support.

Setting the ready-made solutions on objective benchmarks gives the firm the ability to test that the ready-made solution will achieve the better outcome they were intended to achieve. Advances in processing speed and reductions in costs now allow this to be done scalably and for every piece of Targeted Support delivered.

This allows the firm to reconcile two seemingly conflicting requirements whilst delivering better customer outcomes and minimising their potential reputational risk.

How Envizage is supporting firms thinking about Targeted Support

Envizage provides an API based cashflow modelling tool which is uniquely placed to help firms to establish ready-made solutions and to verify them for end consumers. Our modeling engine is:

Comprehensive, covering all the risks that a household may face, from investment risks, through health and mortality risks to goal related risks. This allows firms to assess the probability of achieving the goal, for example of covering essential expenses for life in retirement. The ready made solutions can then be tested against different customers within the segment to see whether and how they improve the probability of achieving the goal. Without this probability assessment you cannot prove that the solution improves the clients outcomes.

API first, allowing firms to access the modelling in the way that most suits them from white labeled applications, integrations and bulk running across whole customer segments for testing. The API approach is ideally suited for bulk testing with our “command line running” options and is scalable and secure with options that have no data storage, even temporarily outside of your data perimeter.

Fully configurable, to your firm’s financial, actuarial and advice guidelines assumptions.

We can provide access to the engine in 2 pre-configured options to get firms started with their analysis of Targeted Support, starter and advanced.

	Starter	Advanced
Access to the white labelled model validation app to manually set up and run test scenarios	1 User	Up to 10 users
Unlimited stored test scenarios that can be rerun	✅	✅
Online training / videos start up guides	✅	✅
Standard financial and actuarial assumptions appropriate for UK pensions	✅	✅
Configurable output options, graphs and goal achievability	✅	✅
Email support	✅	✅
Telephone support	⛝	✅
Ability to input firms own financial and actuarial assumptions	⛝	✅
Ability to run previously entered customer scenarios in bulk	⛝	✅
Access to “command line interface” for running bulk customer scenarios – up to 1000 scenarios a day	⛝	✅
Monthly cost (no minimum commitment)	£2,500 plus VAT	£15,000 plus VAT

Benefits of using Envizage for the provision of Targeted Support

As set out above, Envizage is a comprehensive,  API first, fully configurable approach to cash flow modeling for end consumers. This allows cash flow modelling to be deployed at the point of delivery of Targeted Support to a consumer during the verification process.  This enables firms to verify that each and every Targeted Support suggestion delivered is expected to result in a  better outcome for that customer.

Each and every Targeted Support suggestion can be verified that it is expected to deliver better outcomes for that consumer. This is particularly valuable where the firm has, or becomes aware of, more information about their customer as this can be used to demonstrate that the provision of the relevant suggestion either would or would not in fact achieve a better outcome for that customer.

This then has the following business benefits for firms:

1. Provide a consistent, auditable, scalable Targeted Support proposition to your customers

The Envizage API is scalable to any size of client base. This can be provided on a SaaS model for quick and simple implementation or on your own cloud so that client data always stays within your data perimeter.

This allows all recommendations to be checked, enabling a consistent set of expected outcomes of the Targeted Support suggestions provided to your client base to be demonstrated.

The audit trail created by this approach will demonstrate that all Targeted Support suggestions provided to your customers are expected to improve each specific client’s outcomes. Not in aggregate, but on a client by client basis.

2. Reduce your cost of regulatory compliance risk

Automated rules based checking on each customer ensures all Targeted Support suggestions provided to your customers are expected to improve each specific client’s outcomes.

This reduces your cost on manual oversight and of client support in cases where the Targeted Support suggestion may not be expected to improve client outcomes.

Demonstrate to your regulator that you are active in supporting the Targeted Support initiative with the aim of showing better consumer outcomes.

3. Achieve, measure and report a tangible improvement in outcomes for your customers

Meet your Consumer Duty requirements and demonstrate good outcomes for your clients. Deliver more Targeted Support at lower cost and lower regulatory risk with more good outcomes expected to be delivered for your customers. Delivery of more good outcomes will strengthen your brand with your consumers and position you as their pension provider of choice, driving pension consolidation.

If you are interested in Envizage’s API based cashflow modelling tool to get your firm started with your analysis of Targeted Support, or would like to know more about our fully customised API offering to support customer verification at scale, please contact-us@envizage.me for more information.