How technology is changing the pensions conversation

Last year, I spoke about the importance of getting on the right track.

That if we want better consumer outcomes – as well as stronger capital markets to support growth – we need to think beyond individual products and look at the whole financial journey.

How pensions interact with housing wealth…
How savings interact with advice…
And how all these decisions evolve across a lifetime.

Over the past year, we have made good progress.

Targeted Support goes live next month, helping bridge the gap between generic guidance and regulated advice.

The ABI says[2] this could be 'one of the most significant engagement shifts in pensions since auto-enrolment'.

And with 75% of DC pension holders over 45 having no clear plan for taking their money at retirement[3], a big opportunity to help secure better outcomes at lower cost.

For those wanting more personalised advice, we will be proposing next week to simplify rules – expanding access for consumers while reducing complexity for firms.

Then there’s work on later life lending and pension transfers - which I will speak more on later.

Alongside lending our support to the industry-led retail investment campaign going live shortly, and continuing work with the Investment Association and industry on making risk information more effective.

So, a huge amount both delivered and underway, working closely with the Pensions Regulator, Government, and others.

And it’s encouraging to see the level of attention pensions are receiving across the political system.

But today I want to focus on how technology is changing the foundational context in which we are having this pensions debate.

As technology makes people much more aware of – and able to act on – their financial wealth, what happens next?

And is our pensions system ready for the potential demand and behavioural shifts that follow?

Technology drives visibility

We’ve seen markets reacting sharply to announcements related to tech and AI capabilities. Quickly branding subsectors of financial services as AI winners or losers. 

Investors clearly anticipating dramatic structural change.

For pensions, one of the most significant changes will be how technology drives visibility.

Dashboards will soon allow tens of millions of people to see their pension wealth in one place for the first time.

We can’t predict exactly how that might change behaviour.

Some, the first time, will simply look and move on.

But experience across financial services – auto-enrolment, Open Banking - suggests that when information becomes easier to see and understand, consumer engagement often increases.

The practical first step for dashboard users will be reaching out to pension administrators to confirm and update basic personal details.

So we have to ask ourselves: with tens of millions of pots suddenly becoming visible, are administrators doing enough to prepare for a significant increase in queries? And considering the quality of the customer experience they provide.

Behavioural shifts

In the next stage – as people re-connect with lost pension pots – we should expect more interest in consolidation and transfers. Making it particularly important this part of the market is functioning well.

Our Financial Lives Survey[4] showed many customers don’t take investment options, costs or other factors into account when transferring.

And we’re concerned that existing processes don’t always support meaningful comparison between schemes - particularly for non-advised customers.

The challenge is not simply providing consumers with information; it’s providing the right information in a way that supports understanding of long-term consequences.  

We have set out some proposals on transfers, to be tested. 

But nothing is set in stone; we know we have some re-thinking to do, and welcome alternative ideas. 

We hopefully can all agree this is an opportunity to modernise systems across industry.

And in the longer term, we shouldn’t underestimate the potential for broader behavioural shifts. 

A report released by the Social Market Foundation[5] on Wednesday, suggests 54% of Gen X will have inadequate retirement incomes, with half over-estimating their likely retirement income.

Seeing accumulated pension savings alongside State Pension forecasts in a dashboard, could be quite a profound moment of realisation for many.

Some will be prompted to act – whether it’s upping their contributions, questioning investment strategy, or re-thinking target retirement age.

So the pensions system will increasingly need to cater to a spectrum of behaviours and support needs.

A question for us – as policymakers and industry – is whether we are ready to accommodate more active engagement where it arises.

And to do so at pace.

Risk

Some will point to the risks of doing so.

Greater consumer engagement doesn’t automatically translate into better outcomes. We should be honest that results will not be even across the board.

That can feel uncomfortable – especially when we are talking about something as charged as security in retirement. 

But it doesn’t mean we can, or even should, try to mitigate risk entirely.

Too often discussion focuses only on the risks of doing something, rather than weighing the risks of doing nothing.

Take the mortgage market as an example.

We were seeing large groups of consumers left underserved because of affordability assessments applied too restrictively. 

Otherwise creditworthy borrowers, shut out. Grappling with the high costs and lower security of renting. More financially vulnerable both now and into the future.

So we had to consider how to widen access, while maintaining responsible lending standards and acknowledging potential risks.

We decided to take targeted action to clarify the flexibility already available under our rules.

Eighty-five per cent of lenders updated their approach and can now offer about £30,000 more to many borrowers. 

Getting more people into their own homes – including a sharp increase in the share of purchases made by first-time buyers.

Just one example of why we have been vocal about the need to re-balance risk in the system – included in the latest FCA Strategy[6].

Much of the public commentary around that idea has focused on supporting growth and competitiveness in UK financial services. And that is certainly part of the story.

But re-balancing risk is also about improving consumer outcomes. 

Helping people to understand the choices and risks that inevitably come up as they navigate their financial lives.

And managing that risk with them, not for them.

Consumer protection will always be central to our approach at the FCA. But protection doesn’t mean insulating people from every decision.

Modern pensions policy has to move beyond that kind of simple paternalism: maintaining strong guardrails, yes, and of course respecting that pensions are about security of income in retirement (and also managing fiscal demands). 

But also about empowering customers to make choices about what is, ultimately, their money.

That is why we are introducing reforms like Targeted Support, and consulting on simplified advice.

Our goal is not a ‘risk-free’ system, but a ‘risk-aware’ one.

Technology

So far, I’ve talked about the questions technology may prompt.

But what about its potential to provide answers?

When consumers have access to pensions data via dashboards, this will create clear commercial opportunities for firms to develop tools that support them to engage further.

And research[7] by Lloyds Banking Group indicates over half of UK adults are already turning to AI to help manage their finances – with about 40% using it for future financial planning like pensions.

Complex questions that once required specialist advice, can now be explored with digital tools more quickly and cheaply, and in more accessible ways.

How would increasing contributions affect my retirement income? What difference would it make if I retired later? How might my investment choices influence what I get in retirement?

Our December consultation[8] set out proposals on pensions tools and modellers that will help consumers explore these kinds of questions and better understand their retirement options.

And with research[9] suggesting around a third of consumers would welcome more personalised guidance after using a pensions dashboard, there is a genuine opportunity to innovate, compete, grow. 

In parts of Asia we are already seeing digital models emerge which allow individuals to specify a financial goal and receive automated portfolio recommendations, potentially linked directly to execution at pace.

Whether similar models develop here remains to be seen, but they illustrate a broader point.

That technology is not just changing what consumers can see and expect, but what they are able to do.

Meeting that demand will require strong data foundations and robust digital infrastructure.

The firms that have invested in those capabilities are increasingly better-placed to meet the expectations of a more engaged generation of savers coming through. Others need to catch up – fast.

So I’d encourage making use of all the FCA support available; our Innovation Pathways[10], Sandboxes[11] and AI Live Testing can help firms trial new ideas safely before going to market.

Taking a more holistic view

The greater transparency provided by technology could also encourage consumers to think about retirement in a more integrated way.

For many, retirement is a balance sheet issue, rather than simply a pensions one – involving total wealth management[12] across pensions, housing, and other savings.

And for most households, the majority – around 80%[13] - of their wealth at retirement sits in two places: pensions and housing.

So it’s natural that decisions about retirement income and housing increasingly intersect.

For homeowners, choices around downsizing, equity release, or later life borrowing can interact directly with how their pension savings are used.

And as mortgage terms extend further into later life, and pensions savings gaps persist for some groups, housing wealth will play a larger role in supporting retirement living standards.

Products like lifetime mortgages and retirement interest-only mortgages – currently more niche - may become more prominent parts of the retirement landscape.

This raises important questions.

How straightforward is it to understand the trade-offs between pension drawdown and borrowing to utilise housing wealth?

And does the market currently provide the advice and support people need to navigate those choices with confidence?

These are just a couple of the questions behind the market study we are running this year, the Terms of Reference[14] for which we’ve published today.

We’ll be looking at whether the later life mortgage market can and will develop in a way that meets evolving needs, including what changes might be required to make competition more effective for consumers.

At the same time, exploring how consumers might be better supported to access more holistic advice and guidance on later life lending. 

Appreciating these decisions are rarely straightforward – often spanning housing, inheritance, and long-term care planning considerations all at the same time. 

And we can never lose sight of ensuring vulnerable consumers get the support they need and are not exploited.

Of course, not everyone approaches retirement with housing wealth.

For renters, the absence of housing assets materially changes the retirement equation.

Analysis[15] from Standard Life suggests people who expect to rent during retirement could need an additional £398,000 in savings.

With home ownership falling, this will only become a more pressing issue.

Our interim pure protection study[16] is looking at the structure of markets for products like life insurance and income protection, where take-up remains low despite the crucial role these can play in managing risk over the longer term.

These different elements must work much better together to support consumers in making decisions about their financial futures. 

So that retirement is a glide path, not a cliff edge.

Closing

The issues I’ve touched on this morning – technology, advice, housing and later life lending – all shape the financial resilience people carry into later life.

They are so intersecting that there will inevitably be a number of bodies involved.

But coordination doesn't mean everything has to move forward in lock step; different institutions will take forward different strands of work. 

What matters is that the direction of travel remains aligned. And at the FCA, we are determined to keep moving at considered pace.

Changes in technology, in visibility, in consumer engagement, demand this.

Where improvements can be made today, we shouldn’t delay.

So I hope this time next year, we will be in a position to mark further rapid progress.