Is the pensions sector ready for Consumer Duty?

As of July 31, 2023 the Consumer Duty, a set of regulatory measures from the FCA, comes into effect for new and existing products that are open for sale or renewal. With implications for firms across financial services and fintech, this blog focuses on what the Duty will mean for the pensions industry.

Importantly, Consumer Duty will require pension funds to provide transparent information about payment structures – including management fees, admin fees, investment charges – and any additional costs that may be incurred by scheme members. This will enable members to make informed decisions about their pensions and understand the value they are receiving in exchange for payments made. But first let’s review some of the key aspects of the Duty.

What is its purpose?

The objective of Consumer Duty is to raise the standards of conduct for financial services businesses so that they deliver good outcomes for customers through enhanced customer protection, and encourage greater transparency and fairness across the industry.

The framework sets out three key cross-cutting rules that firms must strive to achieve for their retail customers:

• Act in good faith:Customers can expect to be treated honestly, fairly and consistently, taking customers’ interests into account.
• Avoid causing foreseeable harm:Customers are provided with products and services that are of a high standard, delivered fairly, and do not exploit their behavioural biases or vulnerabilities.
• Enable and support customers to pursue their financial objectives:Customers are provided with relevant information, tailored to their individual circumstances, that enable them to effectively make decisions in their own interest.

Who does it apply to?

According to FCA guidelines, the Duty applies to ‘all firms that have a material influence over, or determine, retail customer outcomes’. This includes regulated firms (including those in the e-money and payments sector), consumer organisations and individual consumers, industry groups or trade bodies, policy makers and regulatory bodies, industry experts and commentators, academics and think tanks.

What it means for Pensions Funds and Administrators

In broad terms, the pensions industry has to ensure that they are delivering consistent service and end-to-end value to members. This is particularly important in the context of payments and fees, an element which has not been challenged for some time.

💵 The payments angle. The Consumer Duty cross-cutting rules and four outcomes encompass principles related to transparency, fair treatment, and value for money – principles that the pensions industry must closely consider in relation to payments made to members. In this scenario, payments refer to the fees, charges and costs associated with pensions products or services. Pension providers have a responsibility to disclose these to members in a clear and transparent manner, ensuring that members understand what they are paying for, and the impact it may have on their monthly or lump sum retirement benefits.

Pension providers should regularly review and assess their fee structures and consider whether members are truly receiving value for money. If excessive fees or unfair payment practices are identified, it may be viewed as a breach of Consumer Duty.

Ultimately, Consumer Duty will have important implications for payments within the pensions industry as it helps to ensure that members are treated fairly, receive adequate information about costs, and are provided with value for the admin and management fees they pay for their pension funds.

📌 Ebury Mass Payments supports Pension Administrators, Trustees and S151 Officers to deliver a best-in-class payment service, resolving the challenges of processing domestic & global payments by focusing on consistently delivering value and service to Global Scheme Members. We work collaboratively and share insight and expertise with our clients to help them deliver more to members. To speak with an expert, get in touch.

The information provided herein is general in nature and should not be construed as financial or investment advice. The information provided here is not legally binding. The information, data or views expressed here is for the exclusive use of the recipient and is subject to changes without any notice. You may ask the support team or your dedicated relationship manager to provide additional information regarding Ebury products.