What does the consumer duty mean for pension scheme trustees?

The FCA’s new consumer duty aims to set higher and clearer standards of consumer protection across financial services, requiring firms to put their consumers’ needs first. It applies from 31 July 2023, for new products and services and existing products or services that are open to sale or renewal. Closed products and services will be brought in scope from 31 July 2024.

FCA-authorised firms providing products and services will need to comply with the duty where they can determine or materially influence “retail customer” outcomes. The outcomes are divided into:

• products and services
• price and value
• consumer understanding, and
• consumer support.

Firms must assess and evidence whether the outcomes are being met on an ongoing basis, addressing any issues they identify. The FCA’s view is that this will require a significant shift in both culture and behaviour by many firms.

The consumer duty does not impose any compliance or other obligations on trustees of occupational pension schemes.

So, why does it affect trustees?

Where schemes use FCA-regulated products and services, eg investment advice, the consumer duty can mean that the provider has a duty to the scheme’s members as the ultimate “retail customers”. This could have an impact on the way the products and services are provided.

This is the case for both DB and DC schemes, though there is likely to be more scope for the duty to apply in the DC context. In practice, FCA-authorised firms tend to have less influence on DB member outcomes, where there is a promised level of benefit, compared to DC members whose benefit value depends on different factors like investment returns. However, the consumer duty might apply in the DB context in relation to AVC policies or situations such as an FCA-regulated firm providing members with advice on a transfer exercise.

Where the consumer duty applies, the underlying FCA-regulated firm must consider how its product or service complies and adapt it as necessary. The duty applies based on what is reasonable in the circumstances, so a more extensive review could be needed where the influence over member outcomes is higher, and vice-versa. Trustees should liaise with their providers to understand the impact on their scheme – will there be any changes to product offerings, or in the way providers prepare member communications?

As the consumer duty beds in alongside development of the industry-wide value for money framework, we may start to see the more widespread cultural changes the FCA expects – part of the “fundamental mindset shift” towards the better value for pension savers that TPR hopes for.

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