The Financial Conduct Authority (FCA) has called on pension firms to improve value for customers in older pension products, warning that some legacy policies deliver poorer outcomes than newer ones. The regulator's review of unit-linked non-workplace pensions and savings found that while many products offer fair value, those in older contracts often face higher charges and outdated designs.
Consumer Duty Applies to All Products
Under the Consumer Duty, firms must demonstrate that their products provide fair value and support good outcomes for all customers, including those who are less engaged. The FCA's review covered unit-linked funds, which pool investments from life insurance-based pensions and savings products and collectively hold more than £1 trillion in customer investments.
Legacy Products Lag Behind
The FCA identified that some legacy products deliver poorer value due to older product designs, multiple layers of charges, and limitations in firms' data. Firms must actively identify areas of poor value in legacy books and take necessary action to comply with the Consumer Duty.
Good practices observed include some firms capping or reducing charges for legacy customers, comparing outcomes across different customer groups, and moving customers to better-value alternatives. The regulator expects all pension providers to adopt these practices.
Barriers and Expectations
The FCA is engaging with firms on barriers they face in improving value, particularly for closed books. Many legacy contracts run on older IT platforms, but the FCA insists firms must ensure they can access data needed to monitor outcomes and demonstrate fair value.
Charlotte Clark, director of cross-cutting policy and strategy at the FCA, said: “Consumers in older products should not be left behind, and the good news is that some firms are already showing it doesn’t have to be this way. We want to see that progress reflected right across the market.”
Firms with limited or no unit-linked non-workplace pension or savings business may also find the good practices helpful when assessing value across their products.
