Background

On 12 December 2024, the FCA published a consultation on proposals for “targeted support” in pensions, as part of the wider Advice Guidance Boundary Review being undertaken by the FCA and the Government.

In this response

General comments

We welcome and support the work undertaken by the FCA in this area. We strongly agree that –

  • consumers need greater access to pension support to avoid poor outcomes, such as under-saving for retirement and / or poorly informed decumulation decisions
  • additional pension support should be provided free of charge because many people are not willing or not able to pay for advice, and also on an “opt-out” basis to maximise take-up
  • “ready-made solutions” which are developed for a group of similar consumers, rather than each individual’s detailed circumstances, would be a helpful way forward
  • it is important for the policy intention to tackle grey areas that encourage a risk-averse approach to retirement support, which can be a significant constraint on the kind of help that is provided to consumers.

We are therefore very supportive of the direction of travel outlined in this consultation.

Noting that more detailed rules and guidance are in the course of being developed, we wanted to offer our commentary on several key areas which will need further consideration, especially from the perspective of occupational trust-based pension schemes:

Role of trustees of occupational pension schemes

These proposals, as they currently stand, will not apply directly to trustees of occupational pension schemes as trustees are generally not authorised by the FCA (and generally do not need to be) and so are not within the remit of the proposals. We understand that the FCA is working closely with the DWP and TPR on how these proposals or something similar may be able to be offered by trustees of occupational schemes. With the aim of supporting these discussions, we share below our thoughts on this.

  • As a general principle, we would be supportive of trustees being able to provide targeted support (or something similar), adapted as necessary for the role of trustees, but we would expect trustees to have reservations if this required trustees to become authorised and subject to the FCA regime.
  • Further consideration and clarity will be needed on how targeted support (or something similar) interacts with trustees’ duties and their role; both their current fiduciary duties and the proposed new duty on trustees to provide a default decumulation solution.
  • A trustee’s role is of a fiduciary nature to act in the best interests of the members of the pension scheme as a whole and not of each specific member. Their duty is also to act for the proper purpose of the scheme i.e. the provision of retirement benefits from that scheme and they do not have a wider duty to consider members’ wider financial or personal circumstances. They would also not ordinarily have access to broader data about a member. Consideration will need to be given on whether the scope of their role and duties is to be extended or whether targeted support (or something similar) would need to be more limited to the extent it applied to trustees.
  • Some DC master trusts are provided by FCA-regulated providers who will need to comply with FCA requirements, including the new targeted support requirements. However, the trustees of the master trust are completely separate from the provider and are subject to their own obligations and requirements, both as trustees (under trust law) and in relation to the master trust as an occupational pension scheme (in terms of legislation and DWP/TPR regulatory requirements). There can already occasionally be some confusion between the roles and responsibilities of the master trust provider and the scheme’s trustees. We would therefore encourage the FCA to ensure the proposals on targeted support do not lead to further confusion.
  • The industry is awaiting details of the proposed new legal duty that will require trustees to provide a default decumulation solution. It is not clear if it has been considered whether the targeted support proposals (or equivalent) will be built into the decumulation proposals for trust-based schemes and how the targeted support framework for FCA regulated providers will tie in with this duty. We note that the order of their implementation is not yet certain (ie whether the new framework for targeted support will precede or follow the introduction of the new duty to provide a default decumulation solution). In addition, many larger schemes are now already set up to signpost their members to retirement products and services offered by master trusts and providers, so it is not so easy to segregate the FCA landscape from the occupational pension scheme landscape in this context. There is a risk of inconsistent messaging between the targeted support given by a provider and the guidance around retirement options given by trustees.

To help address some of the above, it would be helpful if the DWP and TPR could publish guidance on the expected role of occupational scheme trustees in relation to targeted support. This is especially important in a master trust context where there is a provider that is subject to the FCA rules and trustees who are not.

Targeted support to be a regulated activity

Originally, the proposal was that targeted support would sit “between both information or guidance and simplified or holistic advice” (para 4.9 of the policy paper on the Advice Guidance Boundary Review) and our assumption was that, its delivery would not require FCA authorisation.

  • However, the consultation proposes that the provision of targeted support would be a regulated activity. We have concerns that this could have the unintended consequence of narrowing the scope of what currently counts as “guidance”, which trustees and other organisations are able to provide (without FCA authorisation) to occupational pension scheme members. Under these proposals, trustees and other non-regulated entities may no longer be able to give certain support to members if they risk being considered to be providing targeted support and therefore straying into regulated activity territory. Some of the examples given for targeted support are currently areas which we believe some providers and/or trustees (particularly in the master trust context) consider to be guidance.
  • As has been recognised in previous consultations, grey areas tend to prevent guidance from being given, as people err on the side of caution. This risk is also acknowledged at paragraph 4.22 in the context of providers. For this reason, we agree that the targeted support regime should generally only capture support that constitutes a personal recommendation in the current framework (question 7). Alternatively, DWP/TPR/FCA guidance should make it clear exactly what trustees can provide in terms of guidance and support to members, without risking straying into regulated activity. We would therefore urge the FCA to consider very carefully how the provision of targeted support will fit into the current regulatory framework, so that members of occupational pension schemes do not lose the existing support that they currently receive.

Data issues: data protection and amount of data

  • Unless and until the market becomes much more consolidated, members could have several different pension pots and there is a risk that different data on a particular member will be held by each pension arrangement. In those circumstances, members could be allocated to different consumer segments for each pension pot (leading to mixed messages), and/or they could end up being excluded from the “ready-made” solutions noted above.
  • We agree that pensions dashboards data could be a useful starting point for the data needed to allocate a consumer to a consumer segment appropriately (once the dashboards are up and running and working effectively). We recognise that accessing and using data in this way could amount to personal data processing, including processing “special category data” and “profiling”. The UK GDPR defines “profiling” as any form of automated processing of personal data consisting of the use of personal data to evaluate certain personal aspects relating to a natural person, in particular to analyse or predict aspects concerning that natural person’s performance at work, economic situation, health, personal preferences, interests, reliability, behaviour, location or movements (Article 4(4)). We therefore support the FCA’s decision to discuss this with the ICO, and also to consider with them any interactions with the direct marketing rules (Chapter 11).
  • We agree that it will be important for firms to use an appropriate amount of data. It is proposed that firms use “limited information held about the customer (and possibly extra information from the consumer) to align them with a consumer segment” (page 22). If a firm uses only the limited information held about the customer, the “ready-made solution” will be less targeted, so we agree that it would be helpful to gather some extra information by asking a limited number of screening questions, such as whether the member is receiving housing and/or disability benefits and who the member is living with. However, asking such screening questions could effectively make targeted support an “opt-in service” (i.e. it requires the member to make a clear positive choice to receive targeted support). This may limit its effectiveness as a mass-market support model, compared to targeted support being an opt-out service.
  • As trailed above, accessing and using data is likely to be more complex for trustees of occupational pension schemes to navigate, because they would not have access to the amount of data that is available to a provider of a contract-based scheme. It is also unclear whether it would be beyond the scope of the trustees’ duty under trust law to obtain that data – that would require consideration of what is in the members’ best interests, which may not be clear at the point when targeted support is first given.
  • As data applied to the provision of targeted support is likely to be more limited that the full fact-find undertaken for holistic advice, it is acknowledged that it will not result in perfect outcomes for every individual who falls within a consumer segment. This makes it important to both (a) include clear explanations within the targeted support of its limitations and (b) encourage individuals to consider for themselves whether their individual circumstances mean that the suggested ready-made solution is appropriate for them.
  • There is a risk that targeted support is given based on characteristics and circumstances that are collected as data at a snapshot in time i.e. a “set and forget” mentality. For example, general data held about a member may point to them falling within a certain consumer segment but that may not be appropriate if there have been recent changes to their personal circumstances. For example, if they become a vulnerable customer for a period because of a life changing event. We would therefore suggest that the criteria applied to determine consumer segmentation may need to be renewed on a regular basis.

Differences in target support solutions

As the consultation notes, in the outcomes-based approach proposed “different firms may design quite different targeted support journeys” with different scenarios, consumer segments and ready-made solutions. We agree that flexibility could be helpful for many reasons and could help to guard against stifling of competition and innovation.

We agree that consumers may however, benefit from a level of consistency amongst providers in their targeted support suggestions (but note though that building consensus around normal ranges might stifle competition and innovation).

There is a risk that without a level of consistency, this could  present a challenge on scheme mergers where different targeted support journeys will not easily map across schemes. This is particularly significant in light of the Government’s proposals to “accelerate and help enable scale and consolidation” in the DC market which may result in a large number of transfers to master trusts and consolidation within the master trust and contract-based world.

Liability for targeted support

We agree there is a strong need to strike a balance between appropriate consumer protection and not deterring firms from providing targeted support because of the potential liability and fear of the next mis-selling scandal. We note that even an unsuccessful complaint is something firms would be keen to avoid.

We agree that it will be very important for there to be clear caveats and disclaimer wording so it is clear what the targeted support is based on and is intended to achieve and what it is not. However, the targeted support must not be so caveated as to undermine the benefits of its provision. FCA’s views on how to achieve the right balance in this respect and guidance on liability would be welcome.

Threshold for providing targeted support

Related to the point above concerning liability for targeted support suggestions, we have some concerns with the proposal that, to be able to provide targeted support, firms would need to have “reasonable grounds for believing that the delivery of targeted support suggestions would deliver a better outcome for their customers than if targeted support was not provided” (paragraph 4.8). We appreciate the need for a “better outcomes” threshold, in line with those discussed in relation to the Consumer Duty, but further guidance on the FCA’s views would be helpful. In particular:

  • It would be helpful if the FCA could clarify what it expects in relation to firms having “to use judgement to decide whether the better outcome threshold has been met” (paragraph 4.9).
  • From a legal perspective, we are not clear how meeting this threshold this could be demonstrated in practice. For example, what evidence would be required. What would the FCA consider to be “reasonable grounds” for believing that this test is met? If there is any risk that a provider’s satisfaction of this threshold could be successfully challenged, providers may well be deterred from providing targeted support.