26 January 2023
- Saving for later life – the Government and others respond
- Pensions dashboards and consumer protection
- FCA starts over with its retirement income advice review
- FCA Consumer Duty to start to come into force from July 2023
The Government, Financial Conduct Authority and Money and Pensions Service have now responded to the recommendations within the Commons’ Work and Pensions Committee report on saving for later life published in September 2022 (see Pensions Bulletin 2022/36). However, there is little that is new that can be gleaned. For the Government’s part, most of the MPs’ recommendations have been turned down or side-stepped. The FCA and MaPS have used the questioning to update MPs on their latest plans.
Picking out three aspects:
- Auto-enrolment – there is confirmation once more that the Government is committed to implementing the findings of the 2017 auto-enrolment review in the mid-2020s, but six years on from that review there is no indication of by when it will consult on its implementation, still less actually legislate. Various references are made to research being undertaken. Any action to increase the statutory minimum contribution rate must await the implementation of the 2017 review
- Triple lock – a call to commit to its continuation for State Pension increases is side-stepped
- CDC schemes – there is a promise to “consult soon” on potential policy proposals to extend CDC legislation “to accommodate well designed and well-run multi-employer and master-trust CDC schemes to operate either on a sectoral basis or wider”. In March 2022 this consultation had been promised for later in 2022
The Government has also said no to the MPs’ suggestion that a new office is established to look into retirement adequacy and gender pension gap issues.
Other than setting out a list of concerns and, through its recommendations, providing some insight into the current work of the Government, FCA and MaPS over a range of issues, it is not clear what the MP’s inquiry has achieved.
The Pensions Dashboards Programme has published a short “explainer video” in which it seeks to explain to the public how the pensions dashboard ecosystem has been designed in order to ensure that pensions dashboards are safe and individuals can use them with confidence.
A very accessible video which may be of help to anyone who has concerns about how the dashboard has gathered together what is private and personal financial information.
The Financial Conduct Authority has announced that is to undertake “a piece of discovery work” to see how financial advisers are delivering retirement income advice and to assess the quality of outcomes their clients are getting.
This review has been prompted by the 2015 freedom and choice reforms resulting in a significant shift in how individuals receive retirement income – away from annuities and towards drawdown on which advice can be complex and may continue to be needed on an ongoing basis.
The FCA says that its findings will help inform its future strategy for the sector, and the results will also be an important indicator of how firms are implementing the FCA’s Consumer Duty (see article below). The review will begin in Q1 2023 and the FCA aims to publish its findings in Q4 2023.
This is not the first time the FCA has launched such a review. Three years ago it launched a similar review only to abandon it in July 2021 (see Pensions Bulletin 2021/30).
In the DC space Government and regulators are increasingly turning to decumulation issues. The FCA’s work in this area is welcome and overdue. It should also complement its completed work on investment pathways for the non-advised (see Pensions Bulletin 2019/30).
From 31 July 2023, firms regulated by the Financial Conduct Authority will be subject to a new set of rules and guidance that set out the standard of care such firms should give to their customers in retail financial markets. Known as the Consumer Duty, the rules and associated guidance relating to it were finalised in July 2022. They come into force on 31 July 2023 for new and existing products or services that are open to sale or renewal, and a year later for closed products or services.
The rules comprise:
- A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers
- Cross-cutting rules providing greater clarity on the FCA’s expectations under the new Principle and helping firms interpret the four outcomes (see below). These rules require firms to act in good faith, avoid causing foreseeable harm, and enable and support retail customers to pursue their financial objectives
- Rules relating to the four outcomes the FCA wants to see under the Consumer Duty. These outcomes relate to the governance of products and services, price and value, consumer understanding and consumer support
The FCA says that the Consumer Duty applies proportionately based on what is reasonable in the circumstances. As such the rules and guidance must be interpreted in line with the standard that could reasonably be expected of a prudent firm.
As this new Duty applies across all a regulated firm’s dealings with a customer in retail financial markets it needs to be followed regardless of whether the FCA has rules that are specific to the product or service in question. The FCA hopes that having such an overarching duty will better protect consumers from harm, not only in relation to existing products and services, but also for those yet to be launched.
With just over six months before this new Duty starts to come into force the FCA has published a review of how firms are implementing it. It finds that whilst many firms are making good progress, others are further behind in their planning. The FCA calls on firms to use the remaining period to particularly focus on those areas that will make the biggest impact, make the necessary changes needed and work closely with their commercial partners to ensure that they are all delivering good customer outcomes.
The Consumer Duty is an interesting departure for the FCA which to date seems to have written extensive rules on services and products, sometimes after widespread harm has occurred. The new rules are lengthy as is the guidance and we mention it in the Pensions Bulletin because we can envisage future accusations of failure to comply with the Consumer Duty. The guidance is (naturally) more accessible than the rules and its use of contrasting examples of good and bad practice helps to draw out the sort of behaviours that are being expected through this new Duty.