Trustees will be expected to develop appropriate communications and guidance as part of the service offer, but detail is limited on what this guidance should look like.
Trustees and targeted support
TPR argues that occupational schemes have the flexibility to offer targeted support-like guidance right now.
The FCA and Treasury certainly argued in discussion paper DP23/5 that rights under occupational pension schemes are not investments for the purposes of the “advising on investments” activity and therefore the boundary for investment advice is not relevant to trustees when they provide support on the options available to scheme members. Their argument would presumably carry over to any specific rules on targeted support.
But there are a couple of problems with this argument.
The first is that without impetus to do so, it is not clear why trust-based schemes would necessarily offer targeted support-like choice architecture to help customers toward their decumulation solutions, especially given the consumer data collection and tech build required for implementation.
The easiest option for those schemes will be to offer the so-called default where no active choice is made – and watch the majority of savers continue to make the active choice to cash in early.
So the risk of inconsistency and poor outcomes remains without a concerted effort from the DWP and TPR toward consistency with targeted support.
The second is that it may simply be inaccurate, or at least firms are not so confident as the regulators.
My discussions with Association of British Insurers members that run occupational schemes (including master trusts) and law firms that advise them suggest that trustees and trustee boards are reticent to offer support tailored to customer circumstances due to the risks that
- they are carrying out a regulated activity (that is, advising on investments); and
- providing more targeted guidance and support to specific cohorts of members is outside the scope of their fiduciary duty to act for the generality of their members.
Partnering
It gets even murkier where a trust-based scheme considers entering a partnering arrangement with an FCA-authorised firm, as envisaged under the new duty.
Because if the trustee uses data about the customer – for example their stated intentions, objectives, financial circumstances – to help steer a member toward a partner’s FCA-regulated product, would that trustee then be providing targeted support without the appropriate authorisations?
How many trust-based schemes would want to apply for FCA authorisations to offer targeted support?
Without regulatory clarity, these regulatory risk factors further reduce the likelihood of targeted support-like guidance being offered by trustees.
Hope
But there is still time to prevent further dislocation between the trust-based and contract-based worlds. Targeted support will be in the development stage at least until the pension schemes bill is introduced around mid-2025. That gives officials at most 10 months to get this right.
Our recommendations:
- TPR and DWP needs to include FCA officials on their policy development of the duty and build out the proposals around guidance and communications. DWP needs to draft the decumulation duty in a way that incorporates support for savers, and enables schemes to offer targeted support as part of it.
- FCA needs to co-create targeted support for pensions with DWP and TPR.
- Under the "further clarifying the boundary" proposal within the advice guidance boundary review, the FCA and TPR should provide outcomes-based guidance to clarify the existing situation for trustees of occupational pension schemes, especially where they partner with other firms to offer FCA-regulated products.
George Ritchie is a senior policy adviser in the long-term savings team at the ABI
