This document provides a high-level update on our 2018 joint regulatory strategy for the pensions and retirement income sector. It outlines how The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) are achieving the joint regulatory objectives in the strategy since its publication and how they will continue to do so in the future.
Published: 7 December 2022
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Foreword
Since the 2018 joint regulatory strategy, we have worked together to tackle the real risk of people not having the level of income they expected in retirement. Now we want to build on this work to enhance and protect savers’ outcomes.
Since the launch of our 2018 strategy four years ago, we have fundamentally changed how we collaborate as organisations. It brought both of our organisations closer together to deliver better outcomes for pension savers and those entering retirement, meaning that working hand-in-hand is now business as usual.
We have taken a range of joint actions to deliver our joint regulatory objectives under the 2018 strategy. To prevent harm, we have made savers more alert to scams and fraud through the ScamSmart campaign. We have also taken proactive joint action to identify and mitigate risks in the defined benefit (DB) transfer market such as our intervention on transfers from Rolls-Royce pension scheme following redundancies in 2020; where we issued a warning to consumers and firms who may be considering transfers and issued a data request to 65 advisers that resulted in us taking targeted actions, including asking one firm to redress clients and two firms giving up their DB advice permissions.
To enhance and set higher standards, we have been developing proposals for a holistic value for money framework for the defined contribution (DC) market. To help savers make good decisions and continue our push towards higher standards in the market we have built our understanding of the barriers that exist through a strategic review of the consumer pensions journey with our ‘consumer journey call for input’ to underpin our ongoing work to support consumer decision-making. As well as actively enabling savers to make informed decisions with the introduction of the stronger nudge to Pension Wise guidance.
The outcome we strive for through our partnership is millions more engaged savers in schemes providing the security and value that all savers deserve. So far, savers have increased their retirement savings with a 30% increase between 2019 and 2022 in assets per member in occupational pension schemes[1]. They are also more engaged, in May 2022 60% of active DC pension holders knew how much in total they and/or their employer were paying into all of their pensions, an increase of 7 percentage points since April 2017[2]. And savers know how to protect themselves from harm, with our ScamSmart advertising campaign reaching four out of five pension savers between 45 and 64, the group most at risk from pension scams.
Our joint response to crises such as the pandemic and learning from the events of the British Steel Pension Scheme also showed the value of deepening collaborative working, such as joint statements issued urging savers to be ScamSmart and not to rush any decisions. The aim was to ensure consumers were supported throughout this unprecedented time and protected from harm.
The landscape has changed post COVID-19 and with the ongoing cost of living crisis — the number of UK adults with low financial resilience has gone up from 10.7 million in February 2020 to 12.9 million in May 2022[3]. Further profound changes caused by trends such as geopolitical insecurity, technological developments, and the net zero transition — are transforming markets and the world around us. That’s why now, more than ever, it’s important that both we and the industry do all we can to support savers.
The challenges of the ongoing cost of living crisis could change saver behaviour, impacting the amount of income they will receive in retirement. While our actions cannot address adequacy of pension savings, we are committed to working with government to support savers in achieving good outcomes. It is important that savers understand the options available to them and the consequences, so that they can make informed decisions.
Since 2018, both of our organisations have set out new strategic priorities that allow us to better respond to the changing pensions landscape and deliver good pension saver outcomes. Through this update we want to renew our commitment to a shared approach, outline what has been achieved so far, and set out future actions to build on this to continue to deliver these good outcomes.
In doing so, we indicate the strategic areas that will draw our future focus as we enhance and protect all savers’ pensions.
Sarah Pritchard, Executive Director of Markets, FCA
Charles Counsell, Chief Executive, TPR
Footnotes for this section
- [1] TPR DC trust: scheme return data 2021 to 2022
- [2] Financial Lives 2022 and 2017 surveys. Question: P8a/bsum1. Unweighted base: 2,564 (2022) and 1,075 (2017)
- [3] Financial Lives 2022 survey. Question: Vulnerability v2 summary. Unweighted base: 19,145. The FCA will be publishing detailed results from the 2022 survey in early 2023
Our progress so far
In our 2018 joint regulatory strategy (PDF, 615KB, 25 pages) we set out to tackle one overarching harm: people not having adequate income, or the income they expected, in retirement.
From this, four joint areas of focus and regulatory objectives were identified where we have worked closely to protect savers from this overarching harm. These joint areas of focus and work to achieve them are detailed below.
Adequacy of pension savings is negatively affected by many factors that cannot be resolved through regulatory interventions, including consumers’ capacity to save. However, we can take certain steps to help consumers achieve the best outcomes within the means available to them.
We want savers to achieve good outcomes and have substantially the same experience regardless of the type of pension they are saving into. We share the same goal: to deliver good pension saver outcomes.
| Harm | People not having adequate income, or the level of income they expected, in retirement | |||
|---|---|---|---|---|
| Key issue | People struggling to maximise their pension savings | Money not being managed in line with savers’ needs | Pensions not being well looked after | People not being enabled to make good decisions |
| Joint area of focus | Access and participation | Funding and investments | Governance and administration | Consumer understanding and decision-making |
| Regulatory objective | Pensions and retirement income products support people to increase their financial provision for later life | Pensions are well-funded and invested appropriately | Pensions are well-governed, well-run and deliver value for money | People access helpful information, guidance and advice that enables them to make well-informed decisions |
Improving information sharing on defined benefit schemes
Following the Rookes review[4] and the publication of our 2018 strategy, we published a joint protocol (PDF, 577KB, 13 pages) setting out new working relationships between TPR, the FCA, the Money and Pensions Service (MaPS) and the Pension Protection Fund (PPF). Informed by a number of factors and learning lessons from events around the British Steel Pension Scheme, this set a joint framework for increased communication and information sharing between the organisations.
This involves regular interaction between our organisations and reports into the Pension Savers Steering Group (PSSG) to:
- share information and intelligence, through legal gateways, predominately in relation to the risk of concentrated and/or significant numbers of members receiving unsuitable advice on DB transfers and/or any associated risks of pension scams or mis selling that consumers may face
- carry out assessments of identified risks to agree action and escalation to PSSG in relation to appropriate intervention
This protocol brought our organisations closer together, allowing us to identify DB transfer risks in the retirement income market more swiftly regardless of the type of scheme. We have put the joint protocol into action, as described further below.
Joint areas of focus and actions we have taken
Since the 2018 strategy we have undertaken joint and individual work to achieve our joint regulatory objectives. Due to the different legal frameworks under which we operate we may take individual work, but this contributes to the same objectives.
Access and participation
Pension saving has become the norm for employees with 10.7 million eligible jobholders automatically enrolled into pension schemes. Both the FCA and TPR have undertaken action to support savers in maximising their pension savings in this changing landscape, to reach an outcome where more savers are participating in pensions.
- Together, we published an updated guide for employers and trustees on providing support with financial matters (PDF, 202KB, 14 pages) to savers without needing to be subject to FCA regulation. The guide provides greater clarity on how they can support their savers with financial matters without entering the FCA’s perimeter, including introducing their savers to regulated pension products or advice, thereby better informing consumers to improve their financial provision for later life.
- TPR has conducted an annual series of clear advertising communications to employers, so they understand their automatic enrolment duties improving savers’ financial provision for later life by ensuring they are auto enrolled where appropriate.
- This is backed up by enforcement activity by TPR with over 51,000 fines for non-compliance issued across 2021/22, up 43% on fines issued in 2017/18.
- The FCA has introduced rules for the consumer duty which requires FCA-regulated firms to enable and support retail customers to pursue their financial objectives. This means firms must ensure they deliver good outcomes for customers who hold later life savings products.
Funding and investments
As pension saving has grown, so too has our focus on scheme funding and investments, with a shift to a true focus on delivering long-term value (as is shown by our value for money work described below). Recognising that there is more work to do in this area, both organisations are taking actions to advance this to reach an outcome where savers are growing their retirement savings and making better investment choices.
This is particularly the case in relation to the regulation of scheme investment and the investment management industry where we have different roles.
The recent issues relating to Liability Driven Investments (LDI) demonstrate this with:
- TPR being responsible for regulating the DB schemes that typically use LDI strategies.
- The FCA regulating the UK fund managers of LDI services, who manage LDI mandates on behalf of DB schemes and assets of pooled LDI funds on a delegated basis.
Recognising our different roles and actions taken in response to the recent LDI issues, we will continue to work together, alongside the Bank of England (including the Prudential Regulation Authority), other agencies and international partners, to ensure market participants understand the risks and take action to achieve an appropriate level of resilience in LDI arrangements. We will also consider longer term implications and wider lessons learnt of recent events.
- TPR has introduced relationship supervision for schemes of strategic importance to help better understand how trustees are managing risks associated with funding and investments in these schemes.
- Rules for valuations for DB schemes are being clarified by TPR through a proposed new DB code of practice to ensure schemes have the necessary long-term funding approach so savers have the best chance of receiving the benefits they expect.
- From 2023, TPR will request more information from schemes on asset allocations to better understand schemes’ exposure to market risks to ensure they are well-funded and invested appropriately in light of the risks.
- The FCA made rules for a new category of authorised open-ended fund called the long-term asset fund (LTAF) to facilitate investment in long-term illiquid assets that meet pension savers’ needs by creating an environment where investment with a view to long-term value generation can take place in an appropriate structure.
- The FCA introduced investment pathways for FCA-regulated providers so that non-advised drawdown savers can more easily select investments aligned with how they intend to use their pension savings and TPR is working with the Department for Work and Pensions (DWP) to provide a similar support mechanism to members in trust-based schemes.
Governance and administration
We strive to create an environment where those running schemes have the highest standards in place, to reach an outcome where there is an increase in schemes that are well run and well governed.
- Together, we are developing a consistent framework for assessing value for money across DC pension schemes to ensure more consumers are invested in well performing and appropriate products. This work will continue as a joint ongoing workstream (described below).
- We both collaborated with the Pensions Administration Standards Association to agree a single set of information that DB schemes should provide automatically with a transfer quotation.
- TPR has overseen the authorisation of master trusts, reducing the market by 60% meaning more savers are now in schemes with good governance and administration standards.
- The FCA extended the Senior Managers and Certification Regime to include insurers in December 2018 and solo-regulated firms in December 2019, making individuals at regulated firms more accountable for their conduct and competence ensuring pensions are well-run.
- The FCA has introduced new rules on how Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) should compare the value of pension products and services and promote the best value for pension scheme members. The rules enhance IGCs’ ability to compare pension products and drive value for money on behalf of consumers.
Consumer understanding and decision-making
Enabling good saver decision-making throughout the pensions journey continues to be a key focus for both regulators, given pension freedoms and the shift towards DC saving, where savers carry more of the risk on their investments. Together, we want to reach an outcome where savers are better informed and more engaged with their pensions.
We have worked together to protect savers from harm, including trying to make sure those transferring out of DB pensions get good outcomes.
- Together, we have made savers more aware of scams with multi-million-pound investment into ScamSmart to encourage savers always to check who they are dealing with, reducing the likelihood of savers making bad decisions.
- Under the joint protocol in 2019, following the Rookes review, we introduced the ‘CETV letter’ (PDF, 114KB, 2 pages) for trustees and administrators to share with their savers who are considering a transfer. The letter provides clear information on the risks of a transfer and the importance of guidance or advice before making a decision, ensuring savers are informed when transferring.
- In response to our concerns around increased risk of DB transfers due to the economic impacts of the COVID-19 pandemic, we sent a further letter to all trustees of DB schemes directing them to the CETV letter and encouraging those who had not yet used it to take it up. We also requested as part of the letter for trustees inform us of any spikes or unusual transfers to allow us to respond quickly to this risk.
- Our improved interaction and intelligence sharing as a result of the joint protocol has resulted in early action to tackle DB transfer risks for example, issuing proactive joint DB transfer statements on the Rolls-Royce scheme, the former BSPS scheme, and P&O scheme, setting out our concerns and the action we would take following monitoring of the market.
- TPR supported the joint work with the FCA on combatting pension scams with the industry-focused Pledge to combat pension scams to get trustees, providers and administrations to better protect scheme members.
- The FCA banned contingent charging on DB transfer advice and introduced a package of support including an advice checker and step-by-step guides explaining what savers should expect when taking pension transfer advice.
- The FCA has produced a DB transfer advice checker that helps savers assess whether the advice they received is likely to have been suitable or not and shows how to make a complaint. The advice checker has been viewed over 10,000 times since it was introduced in 2020 and 89% of respondents said it was helpful.
- The FCA reached out to the eight largest firms providing DB transfer advice to understand the market impact of COVID-19 due to concerns around increased DB transfer risk.
- The FCA has also set out final rules on a redress scheme for former BSPS members who transferred out after being given unsuitable advice to do so.
We have also worked together to support saver decision-making throughout their pensions journey, to help them make good decisions about their pensions.
- We conducted a joint strategic review of the consumer pensions journey to identify how to help consumers make good decisions about pension saving. We are utilising this learning as part of our ongoing workstreams.
- In close collaboration with TPR, the FCA alongside the DWP introduced a stronger nudge to Pension Wise guidance to ensure savers make better informed decisions when accessing their pension savings.
- Alongside our delivery partners, we are supporting the development of pensions dashboards which, by equipping savers with basic information about all their pensions, will better place them to engage in retirement planning, obtain advice or guidance, and ultimately make informed decisions.
- The FCA introduced earlier and more frequent wake-up packs for contract-based schemes which must include a single-page summary and risk warnings at age 50, and following on from this both the FCA and TPR are working with the DWP to ensure savers in trust-based schemes receive communications at the appropriate point in their savings journey.
- The FCA introduced rules for the consumer duty which will set a higher expectation for the standard of care firms give customers to ensure a higher and more consistent standard of consumer protection and ensure that firms deliver good outcomes for consumers. Trustees of occupational schemes also have high standards they must comply with (including a fiduciary duty).
Footnotes for this section
- [4] An independent review of the communications and support provided to members of the British Steel Pension Scheme during the pension restructuring exercise in 2017 to 2018, and the choices given to scheme members. It made recommendations to the FCA, TPR and PPF to improve safeguards for consumers.
Our ongoing work
The four joint areas of focus in the 2018 joint regulatory strategy — which remain valid — align to our respective organisation’s strategic priorities:
| Harm | People not having adequate income, or the level of income they expected, in retirement |
|||
|---|---|---|---|---|
| Joint area of focus | Access & participation | Funding & investments | Governance & administration | Consumer understanding & decision-making |
| This aligns to: | ||||
| FCA strategic focus (commitment) |
Setting & testing higher standards (Enabling consumers to help themselves) |
Setting & testing higher standards (Putting consumers’ needs first) |
Setting & testing higher standards (Putting consumers’ needs first) |
Setting & testing higher standards (Enabling consumers to help themselves) Reducing & preventing serious harm (Reducing & preventing financial crime/dealing with problem firms/improving the redress framework) |
| TPR strategic priorities | Scrutiny of decision-making (decisions made on behalf of savers are in their best interests) |
Security (savers’ money is secure) Value for money (savers get good value for their money) |
Value for money (savers get good value for their money Scrutiny of decision-making (decisions made on behalf of savers are in their best interests) |
Security (savers’ money is secure) Embracing innovation (the market innovates to meet savers’ needs) |
The overarching harm and four areas of focus will continue to guide our joint work together as we deliver the initiatives set out in our respective corporate strategies and plans.
In doing so, we will continue to place pension savers at the heart of our work and be clear on the outcomes we seek in partnership with industry.
Joint workstreams
In our 2018 joint regulatory strategy we set out four joint areas of focus and objectives (described above). The below table aligns these areas with eight ongoing joint workstreams and our respective target for savers following this work.
| Harm | People not having adequate income, or the level of income they expected, in retirement |
|||
|---|---|---|---|---|
| Joint area of focus | Access & participation | Funding & investments | Governance & administration | Consumer understanding & decision-making |
| Joint workstream |
|
|
|
|
| Joint desired saver outcome | Savers supported in increasing their financial provision for later life |
Savers' money is invested appropriately |
Savers receive good value for their money Savers' money is responsibly managed to promote sustainable long-term value |
Savers are protected from scammers Savers receive suitable advice consistently & where harm has been caused, receive an appropriate remedy DB savers get the money promised to them Savers are better informed to interact with their pension savings Savers receive the right guidance & advice |
The FCA’s new consumer duty will set a higher level of consumer protection in retail financial markets. It applies across our eight ongoing joint workstreams (described below), demonstrating that consumers and savers continue to be at the heart of everything we do. Our joint regulatory objectives and the consumer duty are aligned and support each other.
The FCA’s consumer duty
We welcome the constructive engagement so far with FCA-regulated firms on the consumer duty which will require firms to deliver good outcomes for consumers. In the context of pension products, this will include enabling and supporting savers to pursue their financial objectives.
We think industry has a key role to play in developing innovative ways to support consumers. We want firms to consider the needs and types of consumers at the different stages of their pension journey and tailor their offering to them, with a focus on ensuring consumers achieve good outcomes. We think this can be achieved without introducing prescriptive rules. The consumer duty sets expectations that FCA-regulated firms should consider how to engage consumers, including making the most of opportunities to interact with consumers at different points in their pensions’ journey.
The consumer duty includes a focus on key elements of the firm-consumer relationship which are instrumental in helping to drive good outcomes for customers. These outcomes relate to the following elements:
- Products and services — we want all products and services to be designed to meet consumers’ needs and targeted at those consumers.
- Price and value — we want all consumers to receive fair value. Firms will need to ensure that there is a reasonable relationship between the price paid for a product or service and the overall benefit a consumer receives from it.
- Consumer understanding — we want firms’ communications to support and enable consumers to make informed decisions about financial products and services. As well as ensuring individual communications are fair, clear, and not misleading, firms will need to go further and consider their overall approach to communicating information to make sure they equip consumers to make effective, timely and properly informed decisions.
- Consumer support — we want firms to provide a level of support that meets consumers’ needs throughout their relationship with the firm. The support firms provide should enable consumers to realise the benefits of the products and services they buy and ensure they are supported when they want to pursue their financial objectives.
Based on this, we want industry to extend its focus beyond narrow compliance with specific rules and consider the impact on consumers and the outcomes. Linked to this, we welcome the announcement by pension providers and schemes of a co-ordinated industry campaign to boost understanding and engagement with pensions.
Productive finance — a focus on long-term value
Desired outcome: Savers' money is invested appropriately.
Action: As part of ensuring overall value for money, it is important that pension schemes consider carefully how money is invested, and for trustees who have fiduciary duties that they only invest in assets if they believe that investment is in the best interests of their members. We also have a role to play in ensuring that there are no undue regulatory barriers that might prevent DC pension schemes from investing in less liquid assets for the long-term. We will work together to consider further the recommendations of the Productive Finance Working Group.
Value for money
Desired outcome: Savers receive good value for their money.
Action: We are working with the DWP to develop a consistent framework for assessing value for money, initially across workplace DC pension schemes, to ensure more pension savers are invested in well performing schemes. These proposals aim for comparability and transparency to drive improvements in value for money.
Regulatory framework for effective stewardship
Desired outcome: Savers' money is responsibly managed to promote sustainable long-term value.
Action: Environmental, social and governance factors are becoming ever more important. On environmental issues, we have already implemented disclosure rules aligned to the recommendations of the Task Force on Climate-Related Financial Disclosures, and the transition to net zero presents both risks and opportunities for pension schemes. In 2023, we will work alongside the Financial Reporting Council and the DWP to assess the stewardship regulatory framework, whether the Stewardship Code is creating a market for effective stewardship and the need for any further regulation.
Pension scams strategy
Desired outcome: Savers are protected from scammers.
Action: Our primary role as the regulators of pensions must be to work to protect the money that savers invest. We are determined to prevent rogue firms taking consumers’ savings for their own financial gain and will pursue criminals wherever we find them through whatever means are available to us. We are developing better use of intelligence to improve identification and tracking of fraudulent activity. We also run our ScamSmart campaign to increase consumer awareness of the risk from fraudsters. Consumers can visit the ScamSmart website to check whether an organisation is legitimate, helping them identify and avoid potential scams.
DB transfer advice
Desired outcome: Savers receive suitable advice consistently and, where harm has been caused, receive an appropriate remedy.
Action: Through regular data collection and an ongoing programme of supervisory work, we continue to work closely together to monitor the pensions transfer advice market. We want to enhance the working relationship between not just ourselves, but the wider regulatory family in this area, as shown by the Pension Scams Action Group.
DB schemes and transfer activity
Desired outcome: DB savers get the money promised to them.
Action: To protect pension savers, we are building on our 2019 joint protocol (described above) by working with the PPF and MaPS to identify DB schemes at risk of transfer activity (for example, due to an employer restructure). We are achieving this through regular working level engagement, sharing of intelligence, quarterly Pensions Steering Group meetings and joint communications/action where issues are identified. Outputs from this work include requesting that trustees issue correspondence to members of schemes that we believe may be at risk of being targeted to transfer as well as publishing joint communications to alert not only consumers to this risk but also financial advisers that may target members of such schemes (as with our P&O alert).
Pensions dashboards
Desired outcome: Savers are better informed to interact with their pension savings.
Action: As two of the six key delivery partners[5] working towards making pensions dashboards a reality, we are determined to ensure the success of the initiative. We want dashboards to be platforms which help savers engage in informed retirement planning. The FCA is consulting on the regulatory framework for pensions dashboards operators. The FCA also recently made rules for FCA regulated pension providers connecting to dashboards. TPR will help prepare the schemes it regulates to meet their duties (as set by the government’s Pensions Dashboards Regulations 2022) while exploring how scheme and provider administration can work more effectively.
Supporting consumer decision-making throughout the pensions consumer journey
Desired outcome: Savers receive the right guidance and advice.
Action: Our joint pensions consumer journey feedback statement explored how best to engage savers throughout their pensions journey so they can make informed decisions that lead to better pension saving outcomes. This has built our understanding of what more could be done to help savers make good decisions about their pension. We think industry has a key role to play in developing innovative ways to support savers and tailor their offering to them. We are working with the DWP to consider how to further support savers, including through the FCA’s new consumer duty, and work in this area ties in closely with wider FCA work on advice and guidance. As part of this, the FCA has been working with firms to explore their concerns around providing more support to savers in the context of accessing their pensions. We are exploring options for giving them greater confidence about the advice/guidance boundary, recognising that the consumer duty requires firms to deliver good outcomes for these savers (see above). In addition to this work, the FCA has said it is willing to review how the advice/guidance boundary is working to inform any future further government regulatory reform. The FCA will share these learnings with TPR.
Footnotes for this section
- [5] FCA, TPR, MaPS, Pensions Dashboards Programme (PDP), DWP, HM Treasury
Ways of working
These eight joint workstreams demonstrate the fundamental shift in recent years in the working relationship between the FCA and TPR where we are now working hand-in-hand. We will continue to work as closely as possible as we carry out these joint workstreams while recognising that there are other partners beyond TPR and the FCA who have a significant impact on how industry can deliver good outcomes for savers. With this in mind, our ways of ongoing working can be divided into three parts:
- Joint assessment of risks and harms — such as our work together to tackle pension scams through Project Bloom (now called the Pension Scams Action Group) and intelligence sharing.
- Joined-up working on cross sector initiatives — such as our work supporting the pensions dashboards initiative and plan to consult jointly with the DWP on a consistent framework for assessing value for money.
- Communications around joint work — such as our continued joint proactive communications around DB transfer concerns.
On areas of joint strategic interest — recognising our different frameworks — where appropriate we will consider from the outset how we will work jointly, whether through consultations, communications, supervisory approaches or new regulations, developed in partnership with the DWP.
It is only by working seamlessly together as one regulatory family, in collaboration with industry, that we can deliver the consistent regulation and outcomes that the public expect. We will continue to work closely together so savers achieve the same good outcomes regardless of their pension type.