This is a feedback statement for the joint Call for Input by The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) on the pensions consumer journey.
In the Call for Input we invited views on how best to engage consumers so they can make informed decisions that lead to better pension saving outcomes. This response details the feedback we received and our next steps.
Published: 7 June 2022
FCA publications number: FS22/3
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Who should read this feedback statement
This feedback statement is relevant to:
- pension providers
- pension trustees
- trade bodies
- consumers and consumer groups
- academics
- employers
Summary
Our Call for Input (CFI) sought views on what else can be done to help engage consumers so they can make informed decisions that lead to better pension saving outcomes.
This feedback statement summarises the themes and sets out our response, ongoing workstreams and how we will use the feedback to inform future work.
We received 49 responses from a range of stakeholders including:
- academics and other third sector organisations
- administrators
- advisory firms
- consumer groups
- defined contribution (DC) pension schemes and providers including master trusts and other trust-based schemes as well as group personal pension providers, self-invested personal pension providers and other contract-based schemes
- trade associations for actuaries, administrators, investment, insurers and pensions
A wide range of views were expressed in the CFI. However, several themes consistently emerged, which indicates consensus on the key issues and what more can be done.
Most respondents agreed that the stages of the consumer journey we set out in the CFI provided a broad basis for engaging the consumer. However, respondents said the journey was highly personalised and non-linear with consumer decisions and touchpoints mainly shaped by people’s life events, such as changing jobs or buying a house.
Respondents considered this personalised journey meant that savers need tailored support throughout their lifetime. Different types of organisations across the pensions industry said that given the low levels of consumer financial literacy, there remains real difficulty in communicating about pensions.
Respondents agreed that we had highlighted most of the structural issues affecting pensions but said that many of the issues reflected wider issues in society. Some respondents offered potential mitigations to inequalities in pensions outcomes associated with gender and religion such as offering support to women returning to work or improving access to sharia compliant funds.
Many respondents, particularly master trusts and large providers, said they would like to do more to support consumers but were concerned about straying into regulated advice or unsolicited marketing activity. These respondents highlighted the importance of consumers receiving the right support at the right time to deliver good outcomes. This included clear and easily understandable communications that take account of the way consumers access and process information. Pensions dashboards were a potential key tool in enhancing engagement with pensions.
Respondents, particularly trade associations, said that regulators, government and other interested parties should ensure their efforts are coordinated. They should work towards the same objectives to avoid contradictions or duplication of efforts.
However, respondents recognised that despite any efforts to encourage engagement, many savers may never engage with their pension. This is why it was important to drive for value for money in DC schemes.
Background
In our joint regulatory strategy (PDF, 615 KB, 25 pages) we committed to a joint review of the consumer pensions journey. We published a joint CFI in May 2021 to understand the factors that influenced consumer decision-making and engagement. We asked what more we as regulators could do to deliver good outcomes for pension savers.
Over the last decade, pension saving has changed significantly. Automatic enrolment (AE) generated a seismic shift in pensions participation, with many millions more people now saving for their retirement. AE was designed to harness the power of inertia and has resulted in passive rather than active saving behaviour, but also low opt-out rates.
Most consumers are in DC pension schemes where, whether they know it or not, they are responsible for their own retirement outcomes. Alongside this, pensions freedoms now mean that people have more choice about how and when to access their savings.
If pension savers are to achieve good outcomes for their personal circumstances in this changed world, a number of decisions have to be made – either directly by consumers themselves or by trustees, providers or employers acting in the best interests of consumers.
Next steps
As regulators, we are determined to put pension savers at the heart of what we do. That means making sure that we focus on putting consumers’ needs first and enabling consumers to help themselves, as set out in the FCA’s Business Plan and TPR’s Corporate Strategy. We are committed to focusing on the impact that actions by trustees, providers and advisers have on consumers and the outcomes they achieve, and we expect them to adopt the same mindset.
The regulatory framework has extensive rules in place, intended to ensure a minimum level of information is available to consumers at key decisions points, such as when starting to save in a pension or accessing it. Throughout the consumer journey our primary focus is on delivering good outcomes for savers and driving value for money in pensions. But we also want to ensure consumers have access to more than this minimum level of communications provision and receive outcome-focused communications.
Where there are relevant regulatory workstreams that are already in progress or soon to begin, we have signposted these throughout this feedback statement. The feedback to the questions posed in the CFI has allowed us to identify further areas to explore and will inform our understanding of interventions in the years to come.
Engagement is a challenge that cannot easily be resolved through prescriptive regulatory interventions. Rather, it needs a range of measures. Firms, schemes, providers and advisers, can and should do more to make pensions work well for consumers. There are a number of outcomes we want to see throughout the consumer journey. We want consumers to have access to products and services that are designed to meet their needs and characteristics and are fair value. They should understand the information they are given and be able to make informed decisions so they can act in their best interests and pursue their financial objectives. Ultimately, consumers should be able to have confidence in the pensions industry.
Alongside the interventions from the regulators, government and the Money and Pensions Service (MaPS) set out in this feedback statement, the pensions industry must lead the way in thinking of innovative ways to support consumers. An important part of this is considering what forms of communication are most effective. Digital services make it easier and faster to engage with financial services. As set out in this feedback statement, we see this as an opportunity for firms to think about how they present information to consumers to improve decision-making and consumer outcomes.
The outcomes-focused approach we outline here is consistent with the themes underpinning the FCA’s Consumer Duty work, which sets out how the FCA wants to see firms’ focus extend beyond narrow compliance with specific rules. We want firms to consider the needs and types of consumers at the different stages of their pension journey and tailor their offering to them, with a focus on ensuring consumers achieve good outcomes. As with engagement, this cannot be achieved through prescriptive rules. Firms need to understand the needs of their consumers and assess whether their products meet these needs.
We have produced this feedback statement, in part, to share knowledge on key issues with the industry and other stakeholders, as it may help inform initiatives that they design.
Stages of the pensions consumer journey
We set out five main stages of the pensions consumer journey in the CFI, framed by the current touchpoints savers have with their pensions and the mandatory communications required by regulators and government. These stages were:
- starting up a pension
- accumulating (saving in a pension)
- approaching retirement
- accessing a pension
- decumulating (converting pensions savings to retirement income)
We set out that decisions that have to be made by, or on behalf of, consumers across the journey included:
- when to start saving
- how much to save
- which savings vehicle to use
- how and when to seek advice or guidance
- how and when to access their savings
We acknowledged that the pensions consumer journey does not always follow a linear path, and that some decision points will reoccur during a saver’s lifetime. With that in mind, we asked if this understanding of the consumer journey was an appropriate foundation for regulatory policy making. Or if not, what other elements of the journey should be considered and how this might impact the support required.
Most respondents agreed that the five stages identified represented a reasonable high-level overview of the journey that pension savers were on. Two themes emerged.
Life events shape the pensions journey
Feedback received
Many respondents thought that the consumer journey was non-linear, with many decision points recurring over time and not always following the order set out in the CFI. Respondents also said the journey was highly personalised and based on a consumer’s personal circumstances. They thought life events – eg changing jobs or work patterns, changes in marital status and having dependents – drive consumer engagement rather than mandatory communications or birthdays.
Respondents considered that the changing nature of work and retirement – with people working longer or more flexibly – also means that pension saving and accessing pension savings can occur at the same time. This presents further challenges in how mandatory communications can best support consumers.
Some respondents thought the journey outlined in the CFI did not reflect those who are self-employed and noted the low levels of savings in this group compared to automatically enrolled employees.
Our response
We agree that life events provide a good additional opportunity for people to engage with their pensions. As consumers save into a pension, there are currently limited engagement points between the consumer and their pension. For many years, the only correspondence a consumer may look at is the annual benefit statement. Even then, conceptualising and prioritising an income 20, 30 or 40 years in the future is unlikely for all but the most engaged consumers.
However, when a life event makes someone consider their wider financial circumstances, they may be primed to make decisions about their pensions or engage more generally with the decisions they will need to make in the future. This is why we are supporting the government’s Midlife MOT project.
The Midlife MOT is free online support to encourage people in their 40s, 50s and 60s to actively plan in the key areas of work, wellbeing and money. This looks beyond just pensions or financial issues and is a comprehensive review of a person’s circumstances to help them plan for the future.
A Midlife MOT Toolkit for employers and guidance on retirement planning for employees help senior and human resource managers to provide midlife MOTs to their staff. TPR will publicise the existence of the toolkits and would encourage larger schemes to support employers in this initiative as some have already started to do. As set out earlier, the FCA expects firms to think about what information consumers need and how best to deliver it. Midlife MOTs are one way of delivering this information to consumers and we are pleased to see some life insurers developing bespoke Midlife MOTs.
The FCA’s work on the Consumer Duty reinforces expectations that regulated firms should consider how to engage consumers, including making the most of touchpoints where appropriate when communicating with their customers.
We agree that the nature of work and retirement is changing with people accessing their pension income differently to the previous generations. Our CFI was primarily focused on supporting engagement in the accumulation phase of pension saving. But, it is worth noting the existing work done to simplify and support decision-making in decumulation as well as new work that is planned. We are thinking about the consumer journey holistically.
Since pension freedoms started, the FCA has introduced several measures to help consumers make decisions when accessing their pension savings. These include:
- earlier and more frequent wake-up packs, which must include a single page summary and risk warnings at age 50
- several prompts to access the free, impartial guidance from Pension Wise or to take advice, so consumers can get the help they need, including the recently published ‘stronger nudge’ rules to implement the requirements of the Financial Guidance and Claims Act 2018
- investment pathways to help non-advised drawdown consumers choose investments that better align with their objectives for retirement when they access their pension and reduce the risk of them ‘defaulting’ into an inappropriate option
- retirement risk warnings to be given when a consumer decides in principle how to access their pension savings
- improvements to the Key Features Illustrations (KFIs) that consumers receive when accessing their pension, including a summary of the key information
- cash warnings, so that non-advised drawdown consumers only invest wholly or predominantly in cash if they have taken an active decision to do so
- clearer information on costs and charges, in both KFIs and annual information
We are working with the Department for Work and Pensions (DWP) as they integrate these findings into their call for evidence on member communications, guidance and decumulation products.
Because there is no current equivalent of AE for the self-employed, we agree that many do not enter the journey outlined in the CFI and most will have to make more decisions – including actively deciding to save in a pension and picking a scheme suitable for their needs. We believe many self-employed people would benefit from saving into a pension and explore this later.
Value for money by default
Feedback received
Despite agreeing that supported decision-making with appropriate safeguards could lead to better outcomes, respondents recognised that many savers may not ever engage with their pensions. They said this was most likely to be true of savers enrolled in a workplace pension through AE due to the inherent design that harnesses the power of inertia alongside the use of default pension fund strategies. From a policy and regulatory perspective, respondents said there must always be a focus on ensuring good schemes and good defaults that provide value for money.
Our response
Driving value for money in pension schemes is a key strategic priority for both TPR and the FCA, and in September 2021 we launched a joint Value for Money discussion paper looking at how to develop a holistic framework for assessing ‘value’ in pensions. We believe that funds must deliver high-quality outcomes for savers. To make this happen and to drive competition in the market, regulators, industry and employers must be able to access information that allows them to effectively compare and assess value.
As set out in our joint Value for Money feedback statement published on 24 May 2022,the Government has expressed its willingness to legislate to introduce the value for money framework for the schemes regulated by TPR, and we will work closely with DWP to achieve this. We aim to consult on our proposals towards the end of 2022.
Drivers of harm in the consumer journey
In the CFI we identified three main harms across the consumer journey. They are that consumers struggle to make decisions that optimise their pension saving, remain in badly performing products, and are susceptible to scams.
We considered the several drivers that lead to these harms. They include:
- behavioural biases: short-termism, risk aversion, a lack of confidence or overconfidence in financial matters
- structural issues: types of employment, gender, ethnicity, disability and other characteristics
- barriers to engagement: low understanding of pensions, difficulty in moving products or changing contributions, and getting a holistic view of pension savings
Most respondents agreed with the three primary harms and categorised the reason behind these as an overall lack of engagement with pensions. Most respondents also agreed that the behavioural biases, structural issues and barriers to engagement we cited were the main factors that impacted engagement. However, the responses also highlighted additional factors, expanding on and explaining the causes, and offered potential solutions.
The complexity of pensions compounds problems
Feedback received
Several respondents said pensions are complex, with the different types, long-term horizons, complicated terms and interactions with taxation all creating different challenges for savers. Respondents said that, in addition to this complexity, there was a constant evolution of pension rules that left savers unsure how and when they can access their pensions. Some respondents said that this, combined with low levels of financial literacy amongst the UK population, led people to disengage or potentially make decisions not in their best interests when they did.
Respondents said publicity around the sector was also often when things had gone wrong, framing in savers’ minds the risks that pensions could hold, leading to a lack of trust in pensions and financial services more generally. This could create a herd mentality when savers have discussions with colleagues, friends, and family who may also have low financial literacy, which can create a shared view of pensions and decision-making that leads to their own detriment.
Our response
We agree that pensions are complex and we are trying to foster a coherent, outcome-focused regulatory environment. We also agree that financial education and improving financial literacy and capability are key factors to enable savers to make the most of their money and their pensions and help achieve financial wellbeing. This was a key finding of Pensions Policy Institute research ,commissioned by TPR in 2021, that looked at international comparisons of value for money. We support the ambitions of the UK Strategy for Financial Wellbeing, which sets a long-term national goal of two million more children and young people across the UK receiving a meaningful financial education by 2030.
To help achieve this target, the government and MaPS have recently introduced new initiatives to help schools improve children’s money skills. In November 2021 it launched guidance designed to support school leaders and education decision makers to make the financial education currently delivered in their schools more memorable and impactful. Instead of adding to teachers’ workloads, it highlights the links between financial education and the existing curriculum to make money and pensions part of everyday learning.
MaPS’s children and young people Pathfinder programme also funded five projects between 2019 and 2021 to test approaches to delivering evidence-based financial education at scale. In December 2021 it published its evaluation of the Pathfinder programme, which showed that the interventions improved measures of young people’s financial capability. The strongest improvements were to the level of confidence to manage their own money, confidence to keep track of their money, and the ability to understand financial terms and products.
The FCA also runs InvestSmart. This campaign aims to help consumers to make better-informed investment decisions and become smarter investors. This includes helping investors identify and access investments that suit their individual circumstances and attitude to risk, providing impartial information on basic investment principles such as encouraging a longer-term, more diversified investment.
We inform and educate consumers to the risks of fraud and how to avoid them through our joint ScamSmart campaign. Launched nationally in 2014, it targets specific audiences (all investors aged 21 to 75), using evidence based, creative communications developed in line with behavioural science principles. It has used a TV ad and radio ad, print and digital advertising, as well as press activity and partner communications to build awareness of the risks of investment scams, loan fee fraud and pension fraud. Evaluation data shows strong ScamSmart recognition and engagement levels. For example, two thirds of those who recognised the Investment scams campaign confirmed that they had taken action involving the FCA and its resources after having seen our ads.
Since we launched the CFI, pension providers and schemes have also announced a coordinated industry campaign to boost understanding and engagement with pensions, which we welcome.
Self-employed workers and low income not thought to be well-served
Feedback received
As mentioned earlier, several respondents said the consumer journey, as presented, did not reflect the experience of self-employed people. While some are saving into a pension, a large proportion, particularly younger people, low / medium earners, and those in less secure self-employments still have gaps in pension and / or other savings for retirement.
Many comments centred around employment type or income. Self-employment, being outside AE, was seen to offer a less obvious route into pension saving. The design of AE could also mean that those with various employments and a combined income above minimum thresholds might be missing out – especially with the rise of the ‘gig’ economy.
Related to employment type, income was highlighted as a significant structural issue leading to differing outcomes and savings journey. Low incomes could mean that savers never reach the AE threshold and could also create a regionalised effect, with different areas having different pensions outcomes depending on local workforce provision.
Some respondents noted that self-employed people are a diverse group, and pension saving coverage varies considerably within the self-employed. They said while some self-employed people are saving into a pension or have other wealth and have comparable total assets to employees, a greater proportion of the self-employed peoples’ assets are in property rather than pensions.
Our response
The government wants to enable self-employed people to achieve greater financial security in later life. As part of the 2017 Review of Automatic Enrolment, the government committed to trialling different approaches to improve retirement savings for self-employed people. The government said it wants to use behavioural insights from AE to inform policy approaches that can simplify and potentially automate saving for self-employed people. Since then, it has worked with a range of delivery partners to trial approaches.
One such trial involved exploring the role of the consumer’s interaction with tax compliance as an engagement point to direct self-employed people to sources of more information. Building on this trial, DWP, with support from HMRC and MoneyHelper, have added a prompt into the existing online income tax return system to signpost the self-employed who declare they are not paying into a pension to MoneyHelper guidance. Other trials in progress include working with Nest Insight and a range of partners, using financial digital platforms and money management apps to test the role of tech-based nudges and the value of flexible saving mechanisms. Analysis and evaluation of the trials are expected in Summer 2022.
We also note the proposals in the government’s 2017 review to remove the lower qualifying earnings threshold, as well as lower the age threshold in the mid-2020s. This would bring many more people into the pension saving journey, but we are conscious of the current pressures faced by household budgets. The timing of any changes to AE would be a matter for government and subject to the Parliamentary process.
Applying AE legislation to the gig-economy or atypical workers presents a significant challenge. However, where staff are workers, TPR expects companies to automatically enrol them in line with the law. Many gig workers will already be eligible for AE, including those on fixed-term contracts, agency workers and those on zero-hours contracts, subject to meeting AE eligibility criteria. To that end, TPR expects employers in the gig economy to comply with their responsibilities promptly and thinks that the lowering of the AE wage threshold may lead to many more people in the gig economy being brought into pension saving.
The FCA also consulted on measures to help consumers with non-workplace pensions (NWP) build their pension savings for retirement. This was in recognition that NWP savers had to choose their own investments from an increasingly wide range of options. Consumers who do not take advice may end up choosing investments that do not meet their retirement needs. The FCA aims to publish final rules in a policy statement later in 2022.
Inflexible access to pensions tests financial resilience
Feedback received
The issue of financial resilience across all employment types was raised. Some thought that the inability to access pensions as a ‘rainy day fund’ might encourage those with low incomes to opt out.
Our response
The current cost of living pressures draws into focus the need to build consumer financial resilience. Sidecar savings programmes, which are instant access savings accounts tied to a pension, allow account holders to access savings in case of an emergency and could help improve members’ financial resilience. If these vehicles do not have unintended consequences, like increased opt outs of pensions, they could prove useful in allowing members to think about long-term savings holistically and give them a readily available pot to access, should the need arise. We are aware of trials by Nest Insight and will follow their progress with interest.
Improvements to structural issues are there but cannot be solved only by regulators
Feedback received
Respondents agreed that we had highlighted most of the structural issues affecting pensions, but said that many of the issues reflected the wider issues in society and were beyond our roles and capabilities as regulators to address. However, some highlighted expansions or further factors that could cause poor pensions outcomes for savers, and for which there may be pension-specific solutions.
Many comments centred around gender. Respondents expanded on the reasons for the pensions gap among women, including longer life expectancy, lower pay in the workforce and career breaks for childcare or caring for older adults. Tied to this were issues around divorce, with divorced women often missing out on the benefits associated with pensions when they are divided as part of a divorce settlement.
To try and close the gap, respondents called for guidance – delivered by employers, MoneyHelper or the scheme – to be given at life event moments so women can be supported across the consumer journey.
Another structural issue highlighted by respondents that might affect pension outcomes was religion. Some respondents raised concerns that Muslim savers might opt out of AE pension savings because they are only being offered non-sharia compliant funds, or are unaware that sharia-compliant funds were available.
Our response
We agree that women, and all savers, should be supported in their decision-making around pensions. In workplace pension saving, employers can play a valuable role in providing guidance to help employees returning from career breaks to understand how they can best optimise their pensions. As a result, TPR will work with MaPS to produce guidance which enables employers to support staff returning to the workforce and look at how we can promote existing MoneyHelper ‘life event’ guidance around divorce and maternity leave.
As set out later, the FCA has previously published a guide for employers and trustees on providing support with financial matters jointly with TPR. The FCA will continue to work with TPR and MaPS to help schemes and employers offer support to consumers.
As regulators, the Public Sector Equality Duty requires us to advance equality of opportunity between people who share a relevant protected characteristic and those who do not. While we know that many schemes and providers do offer sharia-compliant funds, we are concerned that some may be missing out on the benefits of AE unfairly. As a result, TPR will conduct an equality review to understand how well the market works for different groups of savers to inform regulatory responses.
The FCA’s New Consumer Duty proposals aim to make firms focus on the needs of vulnerable customers and customers with protected characteristics under the Equality Act 2010.
In the trust-based market, DWP has also set out its intention to make 2023 ‘the year of the trustee’, providing support to trustees through a programme of education and by promoting best practice through the course of next year. TPR intends to support the government in its ambitions and will consider how trustees can be supported to make the best decisions for all members.
Support for vulnerable consumers
Feedback received
Beyond the structural issues set out in the CFI, some respondents supported the concept of vulnerability as it also captured other issues that could affect consumers’ pension outcomes. Respondents said that issues such as mental health conditions and digital exclusion were often overlooked. One respondent highlighted research that shows that people suffering from poor mental health have a lower likelihood of being in work, have lower wages when in work or are likely to rely on the benefits system. This left little income available to save and contributed to the pension saving gap.
Our response
A key focus for the FCA is to make sure that firms understand the needs of vulnerable customers and make sure that they are treated fairly. This is more important than ever due to the impact of the pandemic and cost-of-living pressures.
As a result, in 2021 the FCA published guidance to drive improvements in the way firms treat vulnerable consumers and bring about a practical shift in firms’ actions and behaviour. We agree that mental health conditions and digital exclusion are key issues that firms must take into account. The FCA’s proposed consumer duty rules aim to set a higher expectation for the standard of care firms give retail consumers. Vulnerability will be a relevant factor for firms to consider under current proposals in relation to the consumer duty.
Both TPR and the FCA are members of the UK Regulators Network and work in partnership to deliver its strategic priority of improving outcomes for consumers in vulnerable circumstances or with additional needs.
What can be done to enhance engagement and support consumer decision making
We explored what more we as regulators could do to improve the pensions consumer journey. We said using behavioural insights to better align pensions with the specific needs and values of savers could lead to increased engagement. We also asked stakeholders about the metrics used to monitor improvements in engagement.
We asked if there were lessons to learn from other sectors and what stakeholders would find useful for regulators to do to facilitate innovation. Would using the insights firms and employers had on their customers or staff be a good way to drive engagement or deliver good outcomes? And if so, did they need help and guidance to do so?
Acknowledging that savers would not care who they were regulated by, we also explored whether there were ways to improve our joint working to help schemes and firms support savers.
Clear and compelling communications are key
Feedback received
Respondents generally said there were two main areas for improvement with the consumer journey: improving communications to savers and making sure they were enabled to make good decisions through guidance or regulated advice. They said regulators should be clear on the outcomes sought for savers and work together to deliver those.
Across the CFI, the single largest topic raised by respondents was communications. Mandatory communications were too long and complex, with concerns that some of the warnings provided might have the opposite desired effect by disengaging savers. Several respondents said requirements were too focused on paper-based communications and did not consider how to deliver them in more engaging ways digitally, using videos and other interactive tools.
Respondents said that personalised, consistent, and plain English communications were required to engage savers. To this end, some called for a review of the mandatory communications provided across the consumer journey to test which worked best, to remove jargon and improve the language, as well as to rationalise the requirements. This could prevent confusing savers who might receive multiple versions of similar communications if they have savings in different pension schemes.
Providers thought that effective communications required a multi-channel delivery approach, but were hampered in delivering this because data quality was poor. Savers often do not update email or postal details with their pension provider, which limits how they can receive the information. In addition, providers should deliver those multi-channel communications based on an understanding of behavioural insights, for example using layered information to focus on salient points first.
Many larger providers were already conducting test and learn experiments with their customers to understand the best way of engaging with consumers and were willing to share best practice. But they said they would welcome guidance to make it clear what type of experiments were appropriate.
Providers also set out what they see as a current misalignment between our regulatory expectations on communications and other legislation. Many perceive a conflict between our regulatory expectations that schemes and providers should support savers with regular communications to help deliver good outcomes, and the Privacy and Electronic Communication Regulations and Information Commissioners Office (ICO) draft direct marketing code of practice marketing guidelines.
Respondents said the proposed code of practice has a strict interpretation of what is classified as a ‘servicing’ or ‘marketing’ material, which limits what schemes and providers can send to their customers if they do not have appropriate marketing permission from the customer. In a system built to harness inertia like AE, they thought many providers would not have explicit ‘opt ins’ and therefore complying with our expectations may leave pension trustees or providers exposed to legal risk.
Providers and schemes also said that, without customer permission, this would prevent them encouraging customers to save more where it was suitable to do so, move from cash into appropriate investments, consider more suitable products, and consolidate small pots.
Our response
We agree that plain English, inclusive communications are essential to enabling saver understanding and driving good outcomes. To that end, TPR will review its ‘communicating to members’ section of the DC code-related guidance to give more information on inclusivity, using behavioural insights and timing of communications.
The DWP has already started work on simplifying communication by introducing Simpler Annual Benefit Statements, with statutory guidance for trustees and scheme managers published in October 2021.
In addition, as previously set out, the FCA has already made changes to wake-up packs to include a single page summary. It has also improved KFIs to include a summary page and a single charge figure in pounds and pence, and requires clearer charging information for decumulation products.
Going further than communications, the FCA has proposed a new Consumer Duty to set a higher expectation for the standard of care that firms give all retail consumers, including pension savers. The proposed higher standard will require a significant shift in both culture and behaviour for many firms across retail markets. Under the FCA’s proposals, firms will be expected to consistently focus on consumer outcomes and put consumers in a position where they can make effective decisions. By focusing on outcomes, the FCA wants regulation to keep up with technological change and market developments so that:
- consumers are protected from new and emerging harms
- firms can innovate to find new ways of serving their customers with certainty of our regulatory expectations
Under the proposals, firms would be expected to ensure they support consumer understanding, and consumers would be provided with the appropriate level of support. The FCA expects to make any new rules in relation to the Consumer Duty by 31 July 2022.
The FCA recognises the New Consumer Duty will be a significant change for firms to ensure good outcomes for consumers are put at the heart of everything they do and welcomes the constructive engagement so far with industry. The FCA will continue this engagement throughout the implementation period to provide more clarity and support as firms prepare for the Duty to come into force.
This saver-centric approach is mirrored in TPR’s Corporate Strategy, which puts the saver at the heart of what it does.
As outlined in the CFI, we agree that data quality across pensions is poor. Schemes and providers will need to address these data quality issues to get dashboards-ready.
As set out below, we also believe that introducing pensions dashboards may alter the pension consumer journey for many consumers. In time, insights from this new consumer behaviour might be among the considerations that inform our approach to mandatory communications.
When savers are automatically enrolled, they receive communications from schemes and providers setting out what scheme they are in, their contribution rates, and how to opt out of their pensions. If schemes were to communicate about other products they offer, these would likely be classed as marketing communication and would require opt ins. If schemes wish to send messages about other products and services by call, email or text to deliver good saver outcomes they must ensure they comply with Privacy and Electronic Communications Regulations as well as data protection law.
We have consulted with the ICO to seek clarity for schemes and providers on what constitutes service or direct marketing messages in an AE context. ‘Service message’ describes a communication sent to an individual for administrative or customer service purposes. In pensions, service messaging would normally be appropriate communications about a pensions product a customer is saving into. The ICO have said that phrasing, tone and context will all determine if a message is direct marketing.
New opportunities in a digital world
Feedback received
Some respondents said that with the emergence of open finance and Pensions Dashboards, there would be many more touchpoints to engage savers which could be capitalised on across the consumer journey. That may mean the conventional paper-based prompts become less important and that savers could view pensions more holistically with their other personal finances.
To utilise this potential and the engagement points across the journey, there was strong support for a greater focus on financial education and financial literacy at schools and universities ahead of joining the workforce.
Our response
Open finance has the potential to transform the way consumers use financial services. Its emergence could allow consumers to access and share their financial data with third-party providers, enabling the development of innovative products and services. This could involve pulling together information about various financial products, including pensions, to create a holistic view of a consumer’s finances.
While it may take several years to see the full extent of market development in this area, the FCA has already published a CFI and feedback statement setting out its ambition to ensure open finance works in the interests of consumers. The FCA continues to support the Government-designed future Smart Data legislation, as well as industry-led efforts to develop common standards and roadmaps to open finance. It will also continue to encourage open finance propositions to apply for Innovation Pathways and Regulatory sandbox.
The initial objective for Dashboards is distinct from both open banking and open finance: pensions dashboards seek first and foremost to unite consumers with basic information about all of their pensions (including those the consumer has lost track of). In an industry that is not widely digitised, has few common standards, a multiplicity of legacy systems and almost £20bn in ‘lost’ pots, the dashboard architecture is a necessary first step on the road to more holistic financial services for pension savers, including those that may be delivered via open finance. Once operational, Dashboards could enhance consumers’ ability and willingness to engage with their pensions at various stages of the consumer journey.
Appetite and demand for advice and guidance may increase as Pensions Dashboards develop. We anticipate that consumers who use dashboards will be signposted to MaPS guidance and information on how to find regulated financial advisers.
We continue to support the Pensions Dashboard Programme and the DWP in developing the technological and legislative framework for pensions dashboards, both of which industry will need to comply with to begin staging from 2023.
Ensuring access to high-quality supported decision-making
Feedback received
Many respondents thought that, alongside good communications, savers needed access to either enhanced guidance or financial advice. At present, respondents think that savers are not accessing financial advice in sufficient numbers because of the behavioural biases outlined earlier and cost.
Coupled with this was the perceived inability of providers and schemes to provide enhanced guidance. Respondents described this as guidance that is informed and shaped by the sophisticated data that schemes and providers may hold on individuals.
Many large providers said they were willing to offer more personalised guidance but feared straying into regulated advice for which they do not have regulatory permissions. Similarly, respondents largely agreed that employers were wary of giving pensions guidance because of the worry of crossing into advice. Some expressed hope that the work in response to the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) and the Consumer Investment Strategy may tackle these issues and allow more tailored guidance to support saver decision-making.
If employers and firms were to provide guidance and support, respondents thought that early signposts and touchpoints with advice and guidance would be most beneficial. Some providers expressed support for Midlife MOTs and communications when joining the workforce, as set out earlier in this response.
A few respondents suggested that toolkits for employers – either from providers or MaPS – might take the ‘hassle factor’ out of providing guidance, which could be used at specific life or work events. A few providers also expressed interest in MaPS expanding its service to allow a greater partnership approach, either through franchising its services or allowing deeper embedding of MaPS products in providers’ websites.
Our response
The FCA’s Retirement Income Market Data shows that in 2020 to 2021, 54% of all pots accessed in the contract-based retirement income market were accessed without advice or guidance.
We produced a joint guide to help employers and trustees support employees with financial matters without needing to be subject to regulation. The guidance gave information on the things they could do without needing FCA authorisation and helped them understand what actions could trigger a requirement for authorisation.
To support firms giving streamlined advice, the FCA published finalised guidance on streamlined advice (September 2017). This described streamlined advice as: ‘a term used to collectively describe advisory services (such as focused and simplified advice) that provide a personal recommendation that is limited to one or more of a client’s specific needs. The service does not involve analysis of the client’s circumstances that are not directly relevant to those needs’. The guidance contains case studies and examples setting out how FCA rules and guidance apply in different scenarios.
The Treasury amended the definition of regulated advice in the Regulated Activities Order with effect from January 2018, distinguishing between regulated advice that is a personal recommendation and regulated non-personalised advice. This meant that most authorised firms would be exempt from the regulated activity of advising on investments unless the firm is providing a personal recommendation. The FCA has published perimeter guidance (including detailed examples) to help firms understand the boundary between these two forms of advice, and on the advice / guidance boundary more generally. However, ultimately the definition of regulated advice is set out in legislation. The FCA can therefore issue guidance on what it considers falls within or outside that definition (although this is not binding on the courts), but cannot change it or introduce a new definition.
It is clear that concerns remain and some firms are still finding it difficult to develop new services to meet the needs of consumers. The FCA intends to work with firms to explore these issues further in the context of consumers accessing their pensions. The FCA wants to understand firms’ concerns in more detail and discuss options for how they can provide more personalised guidance within the current regulatory framework.
Innovation can be a powerful driver of effective competition in the interest of consumers. The FCA is committed to encouraging new, innovative solutions which will improve the sector’s ability to meet demand. The FCA’s Innovation Hub offers a wide selection of tools that have been designed to help firms pilot innovative business models. Firms are encouraged to engage with the services offered by the Innovation Hub, including the following.
- Innovation Pathways is a new unified firm service that launched at the beginning of April 2022. It encompasses and builds on two previous Innovation Services (Direct Support and Advice Unit). We recognise that in an increasingly digitised market there are many different pathways for businesses to operate in financial services. Innovation Pathways provides tailored regulatory guidance to innovative businesses, including established firms, start-ups and technology firms that want to deliver positive innovations and consumer outcomes in the financial services market, including firms serving gaps in the advice market. It helps innovative firms understand our regulatory regime, explaining parts of the regulatory framework that may be impeding market development, as well as helping firms with the authorisation process.
- The Regulatory Sandbox allows regulated firms to test innovative propositions in the live market with real consumers, alongside regulatory oversight. It allows firms to see how new proposals work in the market in a controlled environment, gives an understanding of the benefits and risks that may arise, as well as helping them to identify appropriate consumer protection safeguards to build into new products and services. Regulatory Sandbox tests can help firms to deliver innovative propositions at a reduced time to market at potentially lower cost.
The FCA welcomes applications from innovative firms at all stages of their product or service development. For further information please contact innovationpathways@fca.org.uk or sandbox@fca.org.uk or alternatively apply direct to Innovation Pathways and / or apply to the Regulatory Sandbox.
Insights from the Innovation Pathways and the Regulatory Sandbox enable the FCA to remain aware of emerging trends in the advice and guidance sector, as well as in wider financial services and act as a valuable input to policy formulation.
As mentioned earlier, MaPS are always looking for opportunities to work with employers, schemes and providers to help them use the content and tools they provide either by direct link through to the MoneyHelper website or by formally syndicating. Best practice on this is on the MoneyHelper website.
For consumers later in their pensions journey, the government and the FCA recently introduced a Stronger Nudge to pensions guidance for trust-based schemes, and contract-based schemes respectively. The Stronger Nudge aims to increase take up of Pension Wise guidance and support consumer decision making, by requiring trustees and pension providers to refer consumers to Pension Wise guidance, explain the nature and purpose of this guidance, and offer to book the consumer an appointment.
Respondents noted that the pensions consumer journey is not linear, and people may need a nudge to pensions guidance earlier in the journey so that they have a full range of pensions options to consider later on. Recognising that more can be done to support consumer decision-making, we are working closely with the DWP, MaPS and others to identify interventions beyond the Stronger Nudge, including potentially an ‘earlier nudge’, that help ensure consumers are supported throughout their pensions journey, regardless of pension type.
The FCA is working closely with the DWP to explore how to support consumer decision-making through the consumer journey, including considering the outcome of the DWP’s decumulation Call for Evidence.
Supporting employers to pick a workplace scheme
Feedback received
In the CFI we asked if employers needed more guidance in picking a workplace pension scheme. Respondents almost universally suggested that large employers would have appropriate support in picking a scheme because they could engage the services of professional advisers, such as employee benefit consultants. Some respondents did express concerns about these advisers offering their own pensions products and whether there were sufficient protections against conflicts of interest.
However, some providers suggested that micro, small and medium employers would benefit from help picking a scheme and being nudged to go beyond simple compliance. When respondents thought that more help was required, it was often suggested this would be most useful as part of a periodic review of the pension scheme – given the dynamic pensions market and likely changes that an employer and its staff composition may have had since start up.
Across all of this, respondents indicated the need to provide a holistic assessment of what constitutes value for money in pension schemes, although some said that measures such as the charge cap and master trust authorisation meant that employers could be certain that their employees were in schemes providing value. Others said there had been too much focus on cost, particularly cost to the employer, rather than an industry-wide comprehensive way of assessing value.
Our response
As outlined earlier, value for money is a key regulatory priority for both TPR and the FCA. We believe it is a key determinant of good pension outcomes, and this is particularly true of those automatically enrolled by an employer in a workplace pension scheme.
We have been developing a holistic framework to assess value for money in DC pensions since launching our discussion paper in 2021. This work is a key part of ensuring that savers get the most out of their pensions by creating the preconditions for better choice through greater transparency and competition. We expect to consult on policy proposals later in 2022 in partnership with the DWP. Once a value for money framework is in place, we will assess its impact on the market and on employer decision-making, and decide on any further action.
We agree that employee benefit consultants play an important role in helping employers pick a scheme for their employees to save into. The Competition and Markets Authority considered the sale of master trust pensions by investment consultants that also provide employee benefit consultancy services and found no evidence that any of the potential conflicts currently gives rise to a competition problem.
Respondents are right to point out that government and industry have taken steps to reduce pension costs and charges over the past few years. In particular, the charge cap has been an important factor in limiting savers’ costs and improving value for money in DC workplace pension schemes. However, while cost is an important component of value for money, we have been clear on the importance of investment performance and services in also creating value and delivering good long-term outcomes.
A shared approach to delivering good outcomes
Feedback received
Many respondents thought there needed to be a joined-up, outcome-focused approach to engagement. They want regulators to be clear that the goals we are seeking lead to good saver outcomes. This would enable industry to prioritise these outcomes.
In delivering the outcomes we want for savers, some respondents also said that industry should be consulted and engaged with to reach a shared position. Some noted that panels were an effective way to test policy and strategic ideas from an early stage, get industry feedback and share information. They noted that the FCA has a number of statutory panels and uses these to good effect, but TPR does not.
To deliver good outcomes most efficiently, there were also calls by respondents for closer work between TPR and the FCA when implementing new regulation. Issues were highlighted with the different timings and requirements for the Stronger Nudge to guidance and simpler annual benefit statements. Existing inconsistencies were also highlighted, including promotion of schemes, decumulation and investment pathways, as well as the consolidation of legacy contract schemes.
A few respondents also noted the need to ensure close alignment of regulators with core government partners in HMRC and the DWP, as well as wider agencies like the ICO. The rationale these partnership suggestions were:
- HMRC, for both tax reasons and its wider pensions communications
- the DWP, for its policy-making and legislative role in mandating regulations within trust-based schemes
- the ICO, because of a perceived conflict between its marketing code of practice and our regulatory communications requirements
Our response
As outlined earlier, both TPR and the FCA are changing their approach to prioritise consumer outcomes. In 2020 TPR launched its Corporate Strategy, which signalled a shift to a saver-centric approach with five key priority areas driving the regulator’s future focus. The FCA has also consulted on a proposed Consumer Duty to drive a fundamental shift in industry mindsets to deliver good saver outcomes. In April 2022, the FCA launched a three-year strategy which is focused on reducing and preventing serious harm, setting and testing higher standards and promoting competition and positive change. As part of the strategy, the FCA committed to putting consumers’ needs first and enabling consumers to help themselves.
We have published the outcomes that we seek for consumers across financial services and pensions through the FCA’s strategy and TPR’s corporate strategy and corporate plan. These make clear to industry what we expect from pension schemes and providers, and the outcomes we collectively strive to deliver.
As a result of this feedback, TPR has set up three stakeholder panels covering savers, industry and employers. It will use these panels to get feedback on proposed regulatory changes at an earlier stage, allow meaningful two-way interaction in a frank and honest forum, and clearly communicate its strategic direction.
We are determined to be part of a clear and coherent regulatory environment that helps industry deliver good outcomes for savers. The joint FCA-TPR regulatory strategy published in 2018 brought our organisations closer together and working hand-in-hand is now very much the norm. We plan to publish an update to the joint strategy in the second half of 2022 which will outline the shared strategic outcomes that will continue to draw our focus in the years ahead. We will also continue to identify and coordinate our approaches to multi-sector issues using the Financial Services Regulatory Initiatives Grid.
Working in this way means that, although individual projects and initiatives may vary in scope and in the approach taken to implementing them due to the nature of the markets we regulate and the legal frameworks in which we operate, the outcomes we seek to deliver will always be aligned.
However, we recognise that there are other partners beyond TPR and the FCA who have a significant impact on how industry can deliver good outcomes for savers. These include the government, MaPS and others. In particular, when it comes to new rules and legislation which span both contract-and trust-based markets, working with the DWP is essential as TPR cannot mandate rules.
We are committed to aligning the outcomes we seek for savers, timelines and approaches wherever practicable. Recent examples include the findings from our CFI being fed directly into the DWP’s call for evidence on member communications, guidance and decumulation products helping to directly shape questions building on the insights provided by respondents. We also carried out joint work on delivering a holistic framework to assess value for money in DC pensions, where all three partners have been working together to develop a coherent framework.
Next steps
In our CFI we set out to understand and identify the factors that influence the pensions consumer journey and how we as regulators, and others across the sector, can drive improvements. As respondents’ submissions show, this is a complex and broad area. Solutions to the problems identified are not straightforward, nor do they lie with one organisation.
We have now identified workstreams already in progress that go some way to addressing the issues raised, but there is potentially more that can be done. We will continue to work with partners to identify areas where we can intervene to deliver good outcomes for consumers.
The FCA’s Consumer Duty work sets out how we want industry to extend its focus beyond narrow compliance with specific rules, and consider the impact on consumers and the outcomes they get. We have highlighted areas where more can be done to support consumers within the current regulatory framework. At this point, the FCA does not think proposing new rules is the right approach. As mentioned previously, we think industry has key role to play in developing innovative ways to support consumers. We want firms to consider the needs and types of consumers at the different stages of their pension journey and tailor their offering to them, with a focus on ensuring consumers achieve good outcomes. This cannot be achieved through prescriptive rules. Firms need to understand the needs of their consumers and assess whether their products meet these needs.
Across this feedback statement we set out that in response we would:
- publicise the existence of Midlife MOT toolkits available for employers and would encourage larger schemes and providers to support employers in this initiative (TPR)
- work with MaPS to produce guidance that enables employers to support staff returning to the workforce and look at how we can promote existing MoneyHelper ‘life event’ guidance around divorce and maternity leave (TPR)
- conduct an equality review to understand how well the market works for different groups of savers to inform regulatory responses (TPR)
- set up three stakeholder panels covering savers, industry and employers (TPR – already done)
- review TPR’s communicating to members section of the DC guidance to provide more information on inclusivity, use of behavioural insights and timing of communication (TPR)
- make rules in relation to the Consumer Duty (FCA)
- publish an update to the joint strategy in the second half of 2022 that will outline the shared strategic outcomes that will continue to draw our focus in the years ahead (TPR and FCA)
- explore firms’ concerns around providing more support to customers about accessing their pensions and discuss options for giving consumers greater support within the current regulatory framework, while also considering further FCA interventions beyond the Stronger Nudge to support consumer decision-making (FCA)
We hope this feedback statement has made our joint positions and expectations clearer to the industry.