This post was originally published on this site.
There was good news last week, with the FCA announcing a new targeted support regime that’s due to start next year. The new rules will enable financial firms to help their customers make more informed decisions by providing them with suggestions on what might work for people like them.
An example could be someone with a large amount in cash savings who could be proactively prompted to consider whether they would like to start investing, as it could help them make more of their money. They would be given options for what might work for people in similar circumstances. It could act as real support to people who may have been considering investing but didn’t know how to take that first step.
Read more: 5 dos and don’ts on reinvesting pension cash into your SIPP
Prior to this, firms were unable to offer these prompts due to concerns that they could be seen to be offering regulated financial advice. This is where a financial adviser gives you recommendations based on you specifically, after having gathered a deep understanding of your financial goals, plans and personal circumstances. Targeted support does not go this far, as it provides recommendations tailored to what can work for people like you.
Read more: The cost of staying loyal to your high street bank
It could be an absolute game-changer for people’s financial resilience and really close the support gap that exists. Not everyone can afford financial advice, and targeted support can help meet that need.
From a retirement perspective, it could make a huge difference to many people who may have spent their working lives without engaging much with their pensions. However, when they reach retirement, they are faced with an array of complex decisions that can have far-reaching implications.
For instance, if you are looking to secure a guaranteed income through an annuity, you need to consider the following:
-
Once bought, an annuity cannot be unwound, so if you make a mistake, you could be counting the cost for years to come.
-
Different providers offer different rates, and if you just take the offer from your pension provider without looking across the market, then you risk being thousands of pounds worse off over the course of your retirement.
-
You need to make sure you get the right type of annuity for your needs. For instance, if you are married, you should consider whether to get a joint life annuity rather than a single life one.
-
Other decisions include whether you should opt for one that rises in line with inflation rather than a level product that pays out the same income every year.
There are a bewildering number of options, and if you have an adviser, they will take you through them before making a recommendation. Those without access to a financial adviser might find it an extremely stressful and difficult process.
Through the targeted support service, firms can’t recommend a specific annuity to the customer, but they can direct them toward annuity brokerage services and help them weigh up the different considerations in terms of what type of annuity will suit them in their circumstance.
Targeted support could also help with other considerations, such as right-sizing the amount of tax-free cash, which needs to be drawn down, and whether leaving money invested in a drawdown would be a good option.
Read more:
Helen Morrissey works with the media to raise awareness of key retirement issues to help people build financial resilience in retirement, and is the head of retirement analysis at Hargreaves Lansdown.
Download the Yahoo Finance app, available for Apple and Android.