The Government struggles to find an overarching measure that defines “consumer protection”. Trust law says that trustees have a duty of care towards beneficiaries of a trust, historically consumers with policies regulated by the FCA were told that the FCA would ensure they were “treated fairly”. The FCA will from April 2023 enforce a new duty on regulated firms known as the “Consumer Duty”. It will include three key elements:
- The consumer principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: ‘a firm must act in the best interests of retail clients’ or ‘a firm must act to deliver good outcomes for retail clients’;
- Cross-cutting rules which would require three key behaviours from firms: taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives, and acting in good faith;
- It will be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to four specific outcomes – communications, products and services, customer service and price and value.
This final bullet looks like a rehash of the work jointly carried out by the Pensions Regulator and the FCA over the past years on Value For Money that concluded that VFM was about outcomes and was driven by good performance , low charges and a high quality of service.
Can we go so far as ask whether “the consumer duty is to deliver value for money?” I say this because for most consumers, these bullets do not give us much to hang on to.
For most people, an assessment of value for money is something easy, instant and reliable
I am also concerned that value for money (or value for members as TPR still sometimes calls it) is a common means of measuring the overall performance of assessing a provider’s capacity to deliver good outcomes to savers in workplace pensions, whether they operate under the regulation of the FCA, tPR – or both.
Firms that are providing retail services but are not regulated by the FCA include Nest and NOW pensions. While People’s Pension appears to be regulated by the FCA in some capacities but is primarily regulated by tPR. The large insurers are regulated by the FCA in delivering funds, insured platforms and contracts of insurance known as personal or stakeholder pensions but their master trusts are regulated by tPR.
Is it not part of the Government’s consumer duty to make it clear that wherever you are saving – whether it be Nest or Pension Bee, you can expect value for money from the provider of services you are paying for and that the provider itself, regardless of fiduciary responsibilities has a direct duty to the consumer?
Or will we have the odd situation where the provider of retail services including Nest (with its 10m+ customers) has a different duty to the consumer than other providers?
A proposal to the DWP
To my mind a department which has in its title “work and pensions” is bet placed to decide on a common definition of value for money for all pensions that originate through work. Even the self-employed can join “company pensions” due to the Pensions Act 2008 ~(Nest actually allow the self-employed to join its scheme).
There are many people who establish a pension independently of their employers . Pension Bee for instance do not operate workplace pensions though the self employed can use its policies to save for retirement as can the employed looking to supplement workplace savings.
It makes a great deal of sense to me , for the DWP, as it embarks this summer on thinking about value for money (a consultation is promised around November) to ensure that all workplace and non-workplace pension providers are subject to the same overriding consumer duty which is a duty to give value for the consumer’s money.
The alternative is that consumers are even more confused by what constitutes “protection” and even less confident that they understand pensions.
Delivering on expectations
The practical application of the delivery of the consumer duty is being rolled out by the FCA in “a suite of rules and guidance that set more detailed expectations for firm conduct”.
Whether such rules and guidance will be meaningful for pensions depends to a large degree on standardisation. There are some means of measuring the quality of service people have had from their pension providers that “cuts across” workplace and non-workplace. Trust Pilot is the one that first springs to mind. People’s Pension has a light green 3.9 rating but in searching for it, I found other results.
The correlation between scores and reviews is unlikely to be coincidental. Firms offering good service are likely to promote trust pilot, firms that don’t – won’t. If “engagement” is a measure, then it appears that trust pilot is a measure of engagement.
There are other areas where service is reviewed across the regulatory divide. Origo offer a transfer performance table which is voluntary for firms to report on . Pension Bee used to publish their actual experience of transfer times which includes all firms they deal with. You won’t be surprised to hear that the worst offenders didn’t publish with Origo.
It would be perfectly possible for the DWP to insist that common consumer review sites are subscribed to and promoted by all workplace and non-workplace pensions. It could even create its own rating service if it found it hard to endorse a commercial service.
But a service assessment is only part of the consumer duty, performance and price and value are in need of similar standardisation that “cuts across” workplace and non-workplace and is equally applicable to tPR/FCA and hybrid regulation. I have written a lot about how we can create a common standard for performance and price that is relevant to consumers wherever they save.
We work in silos, I had not considered the Consumer Duty part of the VFM process until I got a call from FT Advisor last night asking on this subject. That’s because I think of retail pensions as personal pensions and still think of trust based pensions as “institutional”. But a consumer is still a consumer whether he consumes a Nest of Pension Bee pension pot!
Value for Money is the same for savers – wherever they save and spend for retirement. What is critical is that policy is consistent for all consumers , for setting principles, rules , guidance and enforcement. That is the Government’s Consumer Duty and it’s one that I hope will emerge over the next twelve months as all policy teams come together to ensure that we get better value for money from our pensions.