Shouldn’t all workplace pensions be subject to a consumer duty?

From time to time, discussion turn to whether TPR and the FCA could work as one to regulate workplace pensions.

In this article, I ask whether TPR can oversee workplace pensions (whether DB or DC) without embracing the consumer duty.

The phrase “consumer duty” was barely mentioned in the sessions I attended at the PLSA Conference but the subject was brought up in an excellent edition of Darren and Nico’s VFM podcast that featured Margaret Snowden. Darren thought that we had “missed a trick” not extending the consumer duty to all workplace pensions and I agree with him.

The Consumer Duty is a new mindset (a phrase that is used at the Pensions Regulator a lot). It’s new because it makes organizations like SJP move on from their 1980s style charging structure and adopt a more transparent and comparable way of charging customers more in line with what consumers expect where-else they make purchasing decisions.

The consumer duty – for the purchasers of DC workplace pensions

The problem with workplace pensions is that consumer purchasing decisions aren’t made – so much as made for us. The decision on the workplace pension we entrust our savings to is made by our employer. Unless we are our own boss we get little choice in whether we get value for money from our savings.

The consumer duty and the secondary market

The Pensions Regulator has relied in the past on another duty – the fiduciary duty that is at the heart of trust law. But employers, who sponsor both trust and contract based workplace pensions (and typically don’t see much difference in the two) are not subject to either a fiduciary or a consumer duty. They will however be required to understand what makes for value for money and be informed of whether the workplace pension they have chosen for their staff is delivering it. If it isn’t, a new workplace pension will need to be found. That’s assuming TPR has the power to enforce the consolidation of failing schemes and by extension a secondary market where stranded employers can make a second choice.

The concepts of Consumer Duty and Value for Money seem to me so inextricably entwined that it will be hard going forward to have one without the other. Nausicaa Delfas, CEO of TPR had spent almost her entire career at the FCA before joining earlier his year. She will know as well as anyone that the concepts of competition, transparency and fairness which underpin the Consumer Duty are needed , if the universe of schemes overseen by TPR is to be rationalized by consolidation. Whether through DB superfunds or DC master trusts, consolidation needs to proceed in the interests of the consumer and not (just) the consolidator.

The consumer duty  to maintain VFM over time

It was good to see TPR CEO , Nausicaa Delfas attending a reception in Manchester given by superfund Clara. But for Clara to break its duck on schemes consolidated, it will need consumers to pay pensions to. Those pensioners are entitled to consider the security of the organization paying them a wage for life (or at least till Clara hands over to an insurer).

Any duty between Regulator and Service Provider – must focus on the sustainability of the organization being regulated. That Clara and the Regulator have such an understanding is good for future pensioners (as it is for Clara and other future superfunds).

As with the mastertrust assurance framework, the superfund legislation and guidance must ensure that consumers are properly protected and that means superfunds which have a sustainable future. The consumer duty needs to work both ways, ensuring that consumers enter into arrangements that are built to last and to provide sustainable VFM.

Should all workplace pensions be subject to a consumer duty?

The concept of commercial fiduciary management is deeply embedded in occupational pensions. From professional and corporate trustees to master trusts and superfunds, pension funds are governed both by fiduciary and commercial principles.

While fiduciary duty remains enshrined in trust law, we must recognize that  most actors on the pension stage are paid to do so. Pensions are now subject to a series of levies which pay regulators and arms length bodies such as TPR, FCA, MaPs and the PPF. The consumer ultimately pays these levies out of money that otherwise have been distributed through pensions.

The consumer duty is right for a commercial system of workplace pensions. That commercial system is in place and regulation should reflect that.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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