Big savings boost for millions as ‘game changing' pension rules confirmed by government
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HOUSEHOLDS will get new support to help them boost their savings under new government and watchdog plans announced today.
Previously savers who had cash with pension and investment firms couldn't get help with where to put their money without paying for financial advice.
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Millions of savers will get extra support with their finances under the plans
But under huge new plans announced today by the Treasury and the Financial Conduct Authority (FCA) financial firms will be able to give "targeted support" to savers.
This will help them to decide where to invest their money to get the best return.
Firms will also be able to make recommendations to customers based on groups of similar people in comparable circumstances.
The Sun first revealed the proposals exclusively last August.
The plans will help people to understand how to make the most of their pensions.
Many people are not saving enough for retirement and need more help to prepare to stop working.
Most people with a pension that is run by an FCA-regulated firm access their pension pot without taking financial advice or guidance, the regulator said.
The Treasury intends to bring in the changes with a Statutory Instrument, which is a way to introduce and refine laws without needing to create a new Act of Parliament.
This is often quicker than trying to pass a new law.
The changes come after warnings from the Treasury and FCA that too few people are able to get the help they need to manage their finances.
Fewer than 9% of adults accessed financial advice in the year to May 2024.
Meanwhile, many are turning to informal and unregulated sources of advice, including social media.
Estimates suggest that 13million people are not investing where they could be.
Plus, £430billion is being held in cash, even after taking out emergency savings.
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.
- 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%.
- 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.
- 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.
- 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.
Experts have hailed the move as a major step for savers.
Tom Selby, director of public policy at AJ Bell, said: "Targeted Support could be a game changer for Brits, enabling millions of people to get more useful help about saving and long-term investing.
"This should ensure millions of people are better prepared, from building a rainy-day pot to saving for retirement.'
Mike Barrett, consulting director at The Lang Cat, agrees and described the announcement as "a real positive step forward".
He said: "Customers will be able to call their provider directly to ask for help.
"The provider will be able to monitor your pension to check if you are in an expensive fund, not on track or withdrawing too much from your pot. There will also be lots of regulatory protection."
The announcements are part of a wider government plan to help people make the most of their money.
The FCA is working on reforms to help the public understand the risks and benefits of investing.
It is also working to reform pensions in order to make sure people have enough money in retirement.
Meanwhile, it is also developing a strategy to combat the barriers that stop savers from accessing the right financial products and services.
How will the changes work?
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.
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 them?
The Treasury said the changes will help three key groups of investors.
People who are not saving enough for retirement
Currently firms can warn customers that they may not be saving enough for retirement.
But through targeted support firms will be able to suggest an alternative pension contribution rate.
The firms will also be able to help customers choose between their options when they are close to retiring.
Consumers who are struggling to access their pensions
At the moment firms can give savers factual information about their retirement options.
For example, they can explain the key features of an annuity or pension drawdown.
But under targeted support firms will be able to suggest a course of action, such as a certain investment product.
New investors
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.
What else has been announced?
Alongside the introduction of targeted support, the FCA has also published several other proposals.
It wants to simplify its advice rules to make clear the difference between simplified and more widespread advice.
This will give firms confidence that they can provide simple, focused advice to customers who have straightforward needs.
It also wants to improve its guidance on what counts as advice.
This will help firms to understand the opportunities they have to give customers support that does not count as advice.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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