The introduction of the Financial Conduct Authority (FCA)’s new consumer duty will be particularly welcome to trustees of defined benefit (DB) pension schemes who are entering into bulk annuity insurance transactions.
Tim Middleton, director of policy and external affairs at the Pensions Management Institute (PMI) says: “With the volume of buyout activity transacted this year, the timing is particularly fortunate. The new duty will require insurers to “act to deliver good outcomes for retail customers” and so will introduce a new layer of protection for members whose benefits have been subject to a bulk purchase annuity exercise.”
Middleton added: “Whilst the new duty does not apply to trustees themselves, it will apply to the insurers with whom they transact. Members and trustees now have formal assurance that insurers are required to demonstrate the same degree of care in the administration of members’ benefits as was the case when benefits were still the formal responsibility of the scheme.”
Record buyouts
Kieran Mistry, senior business development manager at Standard Life, part of Phoenix Group, agreed with Middleton: “Consumer duty puts member outcomes front and centre and ensures that every aspect of the member journey in terms of the servicing, support and communication is actively managed for their benefit.”
The new consumer duty comes at an unprecedented time for the de-risking market, as well-funded DB schemes race to lock in deals with insurers. De-risking transaction volumes of around £20bn have already been announced in 2023, according to data from Standard Life.
“Given this landscape, it seems inevitable that the £43.8bn record set in 2019 will be beaten this year,” added Kunal Sood, managing director of defined benefit solutions and reinsurance at Standard Life.
The beginning, not the end
The introduction of the new consumer duty is the beginning, not the end, of extra scrutiny from the FCA, warned Steven Cameron, pensions director at Aegon. “We can all expect continued scrutiny from the FCA which will be collecting data to review firms’ delivery … I also see the consumer duty continuing to evolve over time. The external environment will generate newly foreseeable harms for us to protect our customers from.”
Cameron added: “Preparing for the Consumer Duty has led to great collaboration between advisers and providers and we must all make sure that continues. Despite some early industry cynicism, I do believe we’re seeing something good come out of the Duty. Over time, this can only help improve the trust consumers have in the value our industry provides.”
Michael Aherne, member of the Society of Pension Professionals' legislation committee and ESG Group agreed. He added: “Much work has been done within the industry to ensure products are compliant and member communications and support services are in place to help savers secure good outcomes. However, now that the Duty is in force all eyes will be on how it is supervised and enforced by the FCA and how it is interpreted and applied by the Financial Ombudsman's Service."
