How do you feel when a serially tardy friend gets annoyed at you for showing up late?
Or when some random person is allowed to skip a queue that you have been waiting in for hours? I suspect frustration, anger, even anguish. All stemming from the inconsistent application of rules.
One may not feel anguish about the inconsistent approach taken across contract-based and trust-based pension schemes, but it can be frustrating, especially when the argument for consistency is so simple.
From a saver’s perspective, defined contribution workplace pension schemes are fundamentally the same whether they are regulated by the Financial Conduct Authority or The Pensions Regulator, or whether independent governance committees or trustees are involved.
They act as a savings vehicle for customers throughout working life and ideally enable those customers to take an income in retirement.
As Mike Ambery, retirement savings director at Standard Life, notes: “If the FCA and TPR rules differ, there's the risk of an element of inconsistency for customers as well as providers.
"In reality, whether a customer is part of the Standard Life master trust or our workplace group personal pension, they have big decisions to make about their pension savings that we'd like to help them with."
With the announcement of the pension schemes bill there is a risk of further divergence, but simultaneously a chance for greater alignment, depending on how you see the glass.
The duty vs targeted support
The pension schemes bill announced at the King’s Speech is expected to be laid in parliament in spring/summer 2025. The bill will legislate for a smorgasbord of pensions policy, including a duty on trustees to offer a retirement income solution or a range of solutions to their members.
While the duty will apply in a trust-based world, targeted support – if implemented – will be an option for FCA-authorised firms to use in a contract-based world.
As it stands these are very different proposals. The duty will be a legal requirement for the majority of trust-based schemes; whereas targeted support will likely be a discretionary offering available for FCA-authorised firms.
Targeted support as currently formulated uses a target market approach where a little data on the consumer is used to provide behavioural nudges and ‘people like you’ suggestions. It empowers people within specific consumer cohorts to take better decisions about their pension via more targeted guidance.
The duty on the other hand, as set out in the Department for Work and Pensions' late 2023 consultation response, will rely on "opt-out defaults" where scheme members are placed in a generic solution based on the general profile of members where they do not make an active decision. Note: these will not really be defaults, and defaults will not work anyway, but that is the policy.
