On the right track: Connecting consumers, products and growth

Introduction

I was interested to read Karen’s recent comments[2] about, in her words, the UK’s ‘slow motion train crash’ on retirement savings. 

An image that made me sit up – though probably not advisable reading thundering out of Waterloo this morning! 

When I consider that picture as a regulator, I’m drawn to the tracks to find answers. And what do they show us?  

Pensions, savings, mortgages, housing wealth – each sitting on their own line, with their own ticketing system, timetable, and rules.  

A lack of systems thinking. Resulting in confusion and fragmentation that hasn’t kept up with passengers’ changing needs. 

Disjointed journeys, missed connections and people not always getting where they need to go. 

That has to change, and today I want to set out how the FCA, in partnership with others, is laying new tracks.  

Helping to build the smooth, integrated connections people need to move confidently through their lives… 

…whether that’s embarking on homeownership, transferring to a better pension, or making informed decisions about risk so they can arrive into a more secure retirement.  

And how by doing so, we can not only improve passenger journeys, but keep the whole network moving - powering growth.

Building a healthier investment culture

This week, the FCA launched our new five year strategy[3]. 

One of its four key pillars is helping consumers navigate their financial lives.  

That means recognising the realities consumers face and designing regulation that enables support when and where it’s most needed. 

Our Financial Lives Survey 2024 found that only 9% of UK adults had taken regulated financial advice in the previous 12 months.   

2.8% of people with less than £10,000 wealth had sought advice, compared to 28% of people with more than £100,000 wealth.  

Many cite a lack of confidence or not knowing where to start.  

Many keep too much cash in low-interest accounts – on some estimates over £400bn excess cash savings – that erode in real terms value over time, while others chase high-risk investments, often unregulated. 

It’s like some passengers never even board the train, and others hop on an express service without checking the destination. 

So a priority for all of us is to address that dysfunctional relationship with risk, and build a healthier national investment culture.  

Nowhere is that more urgent – and challenging – than on pensions. 

Even with the success of auto-enrolment, the consequences of pension inadequacy are approaching at breakneck speed.  

Phoenix Insights has suggested[4] that 54% of all defined contribution (DC) savers retiring between now and 2060 are expected to be ‘undersavers’ or ‘financially struggling’. 

More people approaching retirement will be relying on a defined contribution pot.  

But while DC confers greater individual responsibility, consumer sentiment and actions haven’t caught up.  

Most never review or switch funds, or seek timely support. 

The signals are flashing red: only three in 10 DC savers over 45 are confident their pensions will give them the retirement they hope for.  

Yet with increasing contributions substantially out of the question or insufficient for many, we must focus instead on how to improve outcomes through better returns, risk alignment and support. 

And make clear that fragmented journeys – treating pensions, mortgages, savings and housing wealth as entirely separate challenges – must become a thing of the past.

Reimagining Advice and Guidance

It is no exaggeration to say that we want our Advice Guidance Boundary Review[5] to trigger an advice revolution.  

In partnership with the Treasury, we will consult shortly on our proposed new model – Targeted Support – aiming to fill the gap between generic factual guidance and regulated advice for pensions and investments. 

Supporting groups with shared needs at lower cost, so more people can take informed risks. 

And in the meantime, we are running a policy sprint to test what it might look like in practice. 

12 firms have been given until next month to design, build and test the consumer facing element of a cash to equity Targeted Support journey.  

Targeted Support could be a ‘stepping stone’ along the support journey, not replacing holistic advice. Taking full advantage of the flexibility the outcomes-focused Consumer Duty[6] now gives us. 

We are working closely with the Financial Ombudsman Service to address concerns that they may treat targeted support as though firms were providing personalised advice.  

That will not happen. Targeted Support is distinct.  

Savers also require better information. On pensions dashboards, the technical build is progressing well, with providers beginning to connect to the underlying architecture.  

By October next year, dashboards will become core to the UK retirement system, and with greater consumer awareness, we should prepare for more questions too: Should I consolidate? Switch funds? Delay retirement? 

This is where Targeted Support and pensions dashboards can work hand-in-hand. 

But I do want to say a word on risk.  

In providing suggestions designed for groups, Targeted Support will not be optimised for every individual.  

That’s a necessary trade-off to improve outcomes for as many consumers as possible. 

Firms should of course always offer good quality propositions, but outcomes will not be even across the board.

Driving growth through better outcomes

This work could be transformative for individuals, but also our economy. 

Improving pension outcomes will also unlock capital for long-term, productive investment, supporting innovation, infrastructure and growth. 

For DC funds, providing access to unlisted equities could significantly enhance long-term returns. 

ABI’s year one progress update[7] on the Mansion House Compact found that almost all signatories had deepened their expertise in unlisted equity investment, with the majority finding positive client appetite, too. 

Pensions moving more into private markets again raises important questions around risk. 

I spoke at the Investment Association in October about the significant opportunities in private markets, but we know how important it is that investors can grasp those with confidence in valuations. 

So earlier this month the FCA published a multi-firm review[8] of valuation processes for private market assets – noting positive findings, as well as areas for improvement with respect to managing conflicts of interests and the process of ad hoc valuations. 

Important given the huge spikes in volatility we are experiencing in markets today, and we will be doing more work in the coming year. 

Valid questions have also been asked around the geographic allocation of portfolios. A matter for Government first and foremost, and you just heard from the Minister for Pensions.  

As regulators, it is not for us to direct how schemes invest, but we certainly want to remove barriers. 

That includes removing an unnecessary focus on immediate liquidity where schemes are invested in the very long term.  

We have now authorised 12 long-term asset funds – triple the number we had when I spoke at this event last year.  

We are also shifting from a focus on cost, to a focus on value, working with the Department for Work and Pensions and the Pensions Regulator on a new Value for Money Framework, requiring operators to be more transparent about returns, costs, and other metrics. 

Allowing stronger scrutiny on whether value is genuinely achieved over the long term, to protect consumers from poor returns delivered by underperforming schemes. 

Responses to our consultation were positive about the overall approach, but have asked us to refine the metrics and how the assessments are expressed. We are working through this important feedback.

We know government sees the consolidation of Local Government Pension Schemes (LGPS) as an important part of the overall landscape to make capital available, and we are primed to receive potential applications from LGPS’ investment pools.

Bold ideas for a joined-up future

So tangible progress on several fronts and a clear direction of travel. 

But should we think more radically?  

Buying a first home. Paying down a mortgage. Building a pension. Drawing on housing wealth later in life. These are not isolated events – they are junctions on the same financial journey. 

Can we do more to design policy, regulation, products and services that reflect that? 

We are taking steps to improve and simplify mortgage regulation, widening access and options for borrowers.  

We have confirmed[9] the flexibility within our interest rate stress test rule and will shortly bring forward more proposals to support home ownership.  

But we all need to challenge ourselves to take a more holistic approach across retail markets.  

An example – research from NEST Insight[10] found that pension auto-enrolment is associated with lower loan defaults and higher credit scores.  

So could more be done to integrate positive pension saving behaviour into mortgage and credit affordability assessments?  

Going further – one of the biggest challenges prospective homeowners face is raising a deposit. 

Australia, New Zealand, the United States, Singapore and South Africa all permit citizens to leverage their pension savings to buy a first home.  

Some have suggested we consider, carefully, similar approaches in some circumstances here in the UK. 

This would rely on individuals having engaged with their pensions and saved in the first place, which speaks to my earlier points around investment culture and advice. 

And there would be trade-offs.  

We would need to take into account the ability of savers to replace those withdrawn funds, the impact on house prices, and whether those individuals – and the UK economy – might be better served by investment in a wider range of productive assets.   

And as we think more radically about the mortgage market and options to support homeownership, what might this mean for saving, including for pensions, more broadly? 

The Equity Release Council[11] estimates that 39% of current renters believe they will still be renting in retirement, while Standard Life[12] suggests renters may need up to £400,000 more in savings. 

Is the UK pension market, which assumes high levels of owner-occupation, prepared for this? 

Those who do own a home in later life also face an evolving picture. 

For many, their home is their biggest asset, and the options and choices in retirement – on lifestyle, housing, care and tax, to name a few – are wider and more complex than ever.

So learning from the past, and with the right product design and consumer protections in place, could later life lending benefit more people, as part of an individual’s financial plan, rather than a last resort?  

Early consideration of how and when someone could access their housing wealth is increasingly important when helping consumers navigate their financial lives. 

When we open our discussion on the mortgage market shortly, we want to get ahead of this issue, not wait till we have an urgent problem upon us. 

But ultimately, the journey to financial security must start long before retirement – with early, clear, and practical understanding of saving, borrowing, investing and risk.  

We cannot expect confident consumers to appear at 55 if we’ve not engaged them at 25. 

Improving financial capability must be a core part of the approach, and I will say more soon about how we can help tackle the impediment that poor financial education is to our country and society.

Conclusion: on the right track

But for now, where does all this leave us? 

If we continue to treat pensions, mortgages and savings as separate tracks, we will miss opportunities to help consumers get where they need to be.  

But if we build a network that truly connects, we can get more people on the way to financial security in retirement. 

We are clear on what that requires:  

• Policy and regulation that supports better decisions, not just better products.
• Open, collaborative and forward-looking conversations about risk and trade-offs.
• And a cultural shift towards long-term value creation – for consumers and the economy. 

The FCA is delivering at pace on the promises we’ve made and we’re ready to go further. 

But we are not the only actor.  

This is a moment for collective ambition and collaboration across the system. 

Because if we can get this right, we won’t just help more people navigate their financial lives and reach retirement with confidence. 

We’ll help our economy reach a stronger, more resilient future too.