The Consumer Duty comes into effect at the end of July 2023. If you’re wondering how this will impact workplace pensions and your role as an Employee Benefit Consultant (EBC), here’s our take on the key questions and answers.
Are workplace pension schemes in scope of the Consumer Duty?
Yes, they are, with one exception.
There are two types of workplace pension – contract-based (such as group personal pensions) and trust-based (including master trusts). The Consumer Duty relates to delivering good outcomes for retail customers. Members of contract-based pensions have always been included within retail customers. The FCA also clarified that for the purposes of the Duty, beneficiaries of trust-based Defined Contribution pension schemes where there is regulated activity by an FCA regulated firm are also in scope.
In a Quarterly Consultation, the FCA went further to say that regulated firms offering services to Defined Benefit schemes, which could materially influence outcomes, are also in scope.1
The only workplace schemes not in scope will be those which are not in any way served by an FCA regulated firm. This could include some single employer trust-based schemes or some master trusts not supported by FCA regulated firms.
What are the Consumer Duty implications where an EBC or corporate adviser is offering services to an employer or to trustees regarding a workplace pension scheme?
The FCA states that the Consumer Duty must be followed by all FCA regulated firms which can determine or have a material influence over the outcomes for retail customers.
This means any regulated firm, be it provider, adviser, consultant or distributor who is involved in the design of the scheme and its default and/or other funds, the setting of prices, consumer understanding including education or communications and/or consumer support such as helplines and complaints handling, must comply with the relevant parts of the Consumer Duty rules and guidance.
There may be some firms not regulated by the FCA who offer services to employers regarding workplace pensions. There are limitations on what services such firms can offer.
But for FCA regulated firms working with employers, it could be difficult to explain such services have no impact on outcomes for beneficiaries. Here, the EBC or corporate adviser should make sure they or the firms they work with who are FCA regulated, are complying with all aspects of the Consumer Duty relevant to the services they’re providing. This could include when setting up a new scheme, transferring to a different scheme or provider, changing the fund range or scheme level consolidation exercises.
What if the EBC or corporate adviser offers regulated services to members?
All such services are captured within the Consumer Duty.
This applies whether services are being offered on a 1-1 basis, in groups or through mass communications. Both advised and non-advised services are covered although the obligations for non-advised will be different.
EBCs should consider their role in individual member support, the production of mass member communications and in support services such as member level consolidation exercises.
Are employers and trustees in scope?
Neither employers or trustees are in scope of the Consumer Duty.
They’re not FCA regulated firms and are not classed as retail customers (trustees are regulated by the Pensions Regulator.) However, they may be interested to understand what the Consumer Duty will mean for their employee members.
How does this link into value for money assessments from Independent Governance Committees and value for member assessments for Trustees?
Where a provider is offering a group personal pension, it must have an IGC or Governance Advisory Arrangement (GAA) which is tasked with making sure members are receiving value for money. Once the Consumer Duty comes into effect, providers must use the IGC or GAA value for money assessment when carrying out its own value assessment under the Consumer Duty.
IGCs operate within an FCA framework but may have developed their own particular value for money criteria. It’s likely there will be much overlap but also some differences between these and the FCA expectations within the Consumer Duty.
Master trust trustees also undertake value for member assessments and again, we expect much overlap but some differences with the Consumer Duty’s approach.
The Department for Work and Pensions, the Pensions Regulator and the FCA have been consulting on producing a consistent Value for Money framework to be applied across all workplace pensions, initially default arrangements2. A later phase will extend this to all funds as well as to individual pensions and to decumulation. The FCA has said it sees the Framework as fully consistent with the Consumer Duty but with no direct mapping between respective criteria, we expect further debate and detail here.
Making sure members and beneficiaries are covered by the Consumer Duty
The Consumer Duty truly is very wide reaching and the FCA clearly wants to make sure members and beneficiaries of all workplace pensions served by FCA regulated firms are included within the scope and as a result receive good outcomes.