Consumer Duty: helping members understand their pension savings

“My pension statement? I don’t remember getting one of those. Oh actually, was that the really complicated looking thing I got through the post from a company I’d never heard of with lots of numbers and terms I didn’t understand? Well, yes! I did get one but that’s now sitting in my “pensions drawer” and I really can’t face looking at it”

How many people in Britain would say this if you asked them about their latest pension statement? Probably the majority. In spite of having dramatically simplified benefit statements with the launch of the Simplified Annual Benefit Statements from 2022, for many, these remain impenetrable documents.

I recently did my mandatory training on the new FCA Consumer Duty requirements that came into force on 31 July. These cover financial promotions as well as, amongst other things, the pension communications that DC members will see. In trust-based world, it’s the trustees who ultimately have the responsibility to make sure the communications they're issuing are compliant with Consumer Duty. In contract-based world, it’s the providers. But ultimately, any of us who are involved in writing or reviewing member communications, in any format, need to make sure that we follow the principles set out.

Consumer Duty states that all financial promotions and communications should be clear, fair and not misleading. Amongst other things, it requires us to:

1. Put risk warnings alongside any statements we make rather than putting (some may say “hiding”?) these at the end of documents.

2. Avoid using acronyms at any point in the communication even if we’ve explained what the letters stand for. This has for many years been a principle used by specialist communications and engagement companies.

3. Make sure that any survey results quoted are clear, eg if 20% of 500 people have said something, this should not be extrapolated to 20% of the population.

4. Present a balanced approach and not favour one option over another (this will be particularly important when communicating with members on changes to investment strategy or the benefits of certain options at retirement).

5. Make the language appropriate for the people who will be reading the communication.

According to the National Literacy Trust, around 1 in 6 people in England had poor literacy skills when the figure was collated from before the pandemic, so they are likely to have worsened since then. 9% of the UK population don’t have English as their first language according to Statista, and many popular newspapers target their reading age at an 8 to 9-year old. So, we’ve got some pretty big challenges to make our pension communications clear, fair and not misleading.

As part of my training, I reviewed the communication from a major provider (I won’t name names!) which is sent to pension scheme members who are reaching the age of 75. Frankly, I was shocked by the letter. If I was a 74-year-old (and potentially a vulnerable customer), I’d be worried out of my mind if I got a 3 page long, technical letter that told me (amongst other things) that the provider could take 25% of my pension away in tax if I didn’t act quickly to give them information about my other pensions. The letter referenced the Lifetime Allowance without explaining what it was, and it referred to an Uncrystallised Funds Pension Lump Sum (and used the UFPLS acronym) as if it was the sort of thing people dealt with on a daily basis.

Give them their due, providers generally have been investing significant sums preparing for Consumer Duty and I would expect things to improve from here, but we should all be building the principles of clarity and fairness into every piece of member literature that we issue.

For me, Consumer Duty is a huge step in the right direction to getting members to understand their pension savings better and we should embrace the challenges and opportunities that it presents to us as an industry.

To find out more on the FCA’s website here.

If you have any questions about anything covered in this blog, please get in touch.

This blog is based upon our understanding of events as at 18 August 2023. It is a general summary of topical matters and should not be regarded as financial advice. It should not be considered a substitute for professional advice on specific circumstances and objectives Where this blog refers to legal matters please note that Hymans Robertson LLP is not qualified to provide legal opinion and therefore you may wish to obtain independent legal advice to consider any relevant law and/or regulation. Your Hymans Robertson LLP consultant will be pleased to discuss matters raised in this blog in greater detail. Please read our Terms of Use.