How far can employers and trustees go in providing pensions information without FCA authorisation?

18 minutes de lecture
22 avril 2021

Author(s):

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have joined forces to provide updated guidance on a common problem faced by employers and pension scheme trustees: when and how can information or other support be given to members to help them with their pension choices without needing to be authorised by the FCA?

It's a publication that could have carried the subtitle 'how not to be punished for your good deeds', as it concerns the unintended consequences of attempting to do a good thing and how to avoid them. It's a serious issue, because the FCA's rules on authorisation and financial promotion can be contravened by accident quite easily, and the penalties for doing so can be severe.



The FCA and TPR's joint guide ('Guide for employers and trustees on providing support with financial matters without needing to be subject to FCA regulation', March 2021, (the Guide)) is a notable advance on the previous version published in 2017, but it still leaves employers and trustees to reach their own conclusions on what they can, and cannot, do without needing to be authorised by the FCA.

To help with that decision, our Insight provides you with a summary of what the Guide confirms, taking account of what's been amended, improved or added, and also comments on the Guide's limitations. The Guide is undoubtedly of improved practical help, but as it continues to leave the employers and trustees to make up their own minds in areas where the stakes for getting it wrong are very high, legal advice should still be sought early in the planning of any proposed member communication exercise to ensure that FCA rules are not contravened. At-retirement communications for members should also be reviewed in light of the Guide, including any third party modellers used by the scheme.

Key action points for trustees and employers

1. The Guide contains essential information for employers and trustees but it is not comprehensive

The Guide should be read by any trustee, employer or pensions adviser who is contemplating a communication exercise, as early as possible in the process, as the directions it contains (as well as the areas it requires the reader to reach his or her own conclusion on) will affect not just what is said to employees and members, but how it is said.

2. Facts, not assumptions. Information, not invites.

Even if the Guide still leaves some areas open to interpretation and application by trustees and employers, its emphasis is very clearly on the importance of information being strictly factual if it is to avoid being seen as financial promotion or regulated advice. Likewise, anything that could be construed as encouraging or persuading a particular course of action must be avoided.

3. The guidance should be considered alongside the Pensions Ombudsman's recent statement

The Pensions Ombudsman's statement raises the bar set by the FCA/TPR in their guidance on facilitating access to IFAs, and should be read as an essential supplement to it.

The Guide's purpose

In the Guide, the FCA and TPR aim to provide trustees and employers with:

  • information on what they can do and say without the need to be authorised by the FCA; and
  • help in identifying which actions might trigger a requirement for authorisation.

Why should the FCA be interested in what is said to members? Both employers and trustees will often want to help members understand the complicated range of choices and freedoms now granted to them, in a way that avoids poor choices, scams and the need for sometimes expensive advice.

However, providing that support can sometimes cause them to come into conflict with the FCA's rules on, for example, financial promotion or the provision of regulated advice. These are activities and practices which should, in most cases, only be undertaken by an FCA-regulated business operating in line with FCA authorisation rules under the Financial Services and Markets Act 2000 (FSMA). Undertaking them in breach of FSMA can lead to harsh fines and even criminal charges - both of which are very good reasons for trustees and employers to want to avoid falling foul of the FCA's rules.

The Guide is intended to help trustees and employers identify when the support that they wish to give members might risk straying into regulated territory. Some of the guidance is clear and sensible, but other details appear, in our view, to require a degree of nuanced objectivity that may be rather less helpful in practice than the FCA intended.

What does the Guide say?

1. Communicating information

The FCA warns that, while support can be offered to members in the form of information, care must be taken to avoid promoting a particular financial product or issuing promotional material. "Financial Promotion" can only be carried out by someone authorised by the FCA or approved by an authorised firm. Employers are partially exempt from this, where they are providing information about their occupational pension scheme. The exemption does not extend to stakeholder or group personal pension schemes, but employers can still provide factual information about those schemes (for example, their Key Features Document).

"Factual" information must, in all cases, be devoid of any invitation or attempt to persuade. The FCA suggests, as an example, that simply telling staff about the existence of an option to switch between default investment funds is fine, but if it can be read as an encouragement to make the switch, it could constitute unauthorised financial promotion.

Answering questions that involve a specific understanding of a member's financial position, as well as their objectives and priorities, is very likely to constitute regulated advice, which can only be provided by an FCA-authorised adviser. This is an uncontroversial position for the FCA to take, but it is still an area that some member communications have been seen to stray into, so care is clearly needed here.

Directions to publicly-available, but generic, resources provided by the Money and Pensions Service (MaPS), Pension Wise, etc can be provided instead.

Information that is not about financial products or investments (for example, budgeting or financial wellbeing-related assistance like utility provider comparisons or will-making) are outside of the scope of FCA regulation, so employers are free to provide support and encouragement in these areas without creating an FCA compliance risk.

2. Introductions and access

The FCA recognise the importance of members being provided with information about the options available within their scheme and their right to transfer out to alternative arrangements. Information should be generic and any tools provided to assist the member should be balanced and objective (for example, those provided by MaPS). However, the FCA goes on to warn that, where a member is directed towards a specific product or provider (except for automatic enrolment purposes), the trustee or employer could, in some circumstances, be carrying out a regulated "arranging" activity.

Introducing members to financial advisers or arranging for them to get regulated financial advice are unlikely to be actions requiring the employer or trustees to be FCA-authorised, but care is still required here. The FCA have confirmed that they approve of the commonly-followed, and simple, process of informing members that they should seek advice from an FCA-authorised firm if they wish to explore whether to transfer benefits out of their scheme (where their transfer value is greater than £30,000), and directing them to an industry-wide directory of IFA firms from which to make their own choice.

The FCA suggests that there may be value in the appointment of an independent third party adviser, to recommend a suitable IFA firm and carry out an ongoing review of that firm's advice, but they do not require it.

Employers and trustees can arrange access to a particular FCA-authorised firm, provided that care is taken to ensure that they do not, as a result, undertake the regulated activities of giving advice or arranging for transactions on financial products. However, the FCA imply in their guidance that, where a restricted, rather than fully independent, firm is chosen (that is, a firm that can only offer advice on a limited selection of products and/or providers), that lack of independence could bring with it a risk that the process could constitute the regulated activity of arranging transactions on financial products. Additional care will be needed here.

A one-off exercise of identifying suitable advisers - such as providing a list of advisers that scheme members may like to make use of - is, according to the FCA, "by itself unlikely to be considered to be making arrangements with a view to transactions 'by way of business'". So it would not be considered to be a regulated activity requiring authorisation. This is, in isolation, an uncontentious position to take, but it doesn't fully reflect the trustees' wider obligations to scheme members, or the employer's wider duty of care towards employees. Please read the section below, on The Pensions Ombudsman's recent statement, for more detail on this.

3. Safeguarded benefits

It's already a well-established requirement that, where a member's cash equivalent transfer value from a defined benefit scheme is over £30,000, the member must obtain appropriate independent financial advice before the transfer can proceed. The transferring scheme's trustees are responsible for checking that this has been received. The trustees will not be in a position (and neither are they so required) to assess the quality of the advice, but they should determine whether the advising firm is both independent of the employer and trustees, and fully permitted by the FCA to advise on pensions transfers and opt-outs, or any other type of transfer that has been requested.

Continuing its focus on generic information, the FCA confirms that information on the conversion or transfer of pension benefits into flexible benefits must not contain any suggestion as to whether the member should or should not opt to proceed. Doing so would rely on assumptions rather than factual information. A balanced and factual view of the general advantages and disadvantages of retaining or transferring/converting those benefits can still be provided, but members should not be given information that can imply that a certain course of action is correct in their case. The FCA also warns against providing indicative information in the form of examples based upon limited individualised data, as an alternative.

However, the FCA seem happy with the use of numerical information in member-specific examples, where they describe the different ways in which a benefit can be taken from the scheme, as this information is outside of the FCA's regulatory reach. For example, these could describe the effect of giving up some inflation-linked pension increases in favour of a higher initial pension, or the different lump sums available alongside a projected pension income on retirement at certain ages.

Usefully, the Guide confirms that members can be provided with transfer values even if they have not asked for them, but it goes on to warn that careful consideration should be given to whether the provision of such unrequested information is "likely to result in good outcomes for members". The provision of contextualised supporting information may be of help to the member here, but it will be important to ensure that the member is not encouraged to opt for that transfer or conversion as a result, as this may risk the process being regarded as an unregulated activity. The guidance includes some useful examples as to how that encouragement might occur, and how it might be avoided, including a clear reference to the independent information provided (again) by MaPS (as opposed to information from commercial organisations).

Quotes for current annuity prices can be provided for comparative or illustrative purposes, as these will be factual in nature, but care (and perhaps advice) will still be needed here to avoid being seen to be recommending a particular product or undertaking the arranging activity. It's noted that because they depend on assumptions, quotes for future drawdown products are not factual and, as those assumptions could influence the member's decision, that information is likely to be seen as part of the regulated advice process.

Because of this, the FCA has also highlighted the need for new care where members might previously have been provided access to transfer value comparator tools or retirement benefit modellers. These will often allow the member to compare a transfer value or sum for conversion into flexible benefits with the estimated value needed at the time to buy an equivalent future annuity. Such tools are still permissible, but the FCA makes clear that, to the extent that they provide illustrative (as opposed to purely factual) information, they fall within the regulated advice process, so should not be provided by employers or trustees. What is more, the Guide does not appear to allow the trustees or employer to signpost the member to tools provided by third party commercial sources, although we note that there is nothing in the FCA's also recently updated rulebook to prohibit authorised advisers from providing those tools in response to unprompted enquiries from members.

A reaction from the Pensions Ombudsman

Following the publication of the Guide, the Pensions Ombudsman issued a statement reacting to the FCA's comment that a one-off exercise of identifying suitable IFAs and providing members with a list of those advisers, would be unlikely to amount to a regulated activity requiring FCA authorisation. The FCA's comment may be true but as the statement implies, it presents a misleadingly narrow view of trustees' and employers' responsibilities towards members and employees. The Ombudsman's statement contains more detail on those responsibilities and, as such, should be treated as an essential supplement to the Guide.

In particular, the Ombudsman emphasises that scheme administrators should carry out and be able to demonstrate appropriate due diligence, ensuring ongoing monitoring of any IFAs included on a list compiled by the trustees, tested against carefully considered criteria. A one-off exercise is not enough. In addition, and expanding on the FCA's guidance, that list should include IFAs covering the whole of the market, not just those restricted to certain types of products or providers.

The Pensions Ombudsman's view matters here because, in the event that a member or former member of a scheme is given poor advice by an IFA contained on a list provided to them in relation to their scheme, and a loss is sustained, they might choose to bring a complaint. That complaint might not be just against the IFA via the Financial Ombudsman Service, but against the scheme via the Pensions Ombudsman on the basis of maladministration. The scheme would be in a much stronger position to defend against that complaint if it can show that the relevant IFA's presence on the list was justified and monitored, and that the member had exercised a free choice.

Mirroring and reinforcing the FCA's comment, the Ombudsman also adds that a "scheme establishing an IFA panel should, where appropriate, seek professional advice before proceeding". This means that trustees and employers are going to need to think very carefully about carrying out a communication without having received that advice first.

What does this mean for trustees and employers?

  • The Guide is a helpful update to what was in use before, but it is far from comprehensive. Its repeated reminders to focus on factual information and avoid words that might invite, encourage or persuade a member to take a particular course of action are very clear, but trustees and employers are still left to work out for themselves where the line between information and promotion or advice is. Professional advice on how to structure employee or member communications is still likely to be needed.
  • That same focus on ensuring that only generic or factual information is provided is particularly important in relation to safeguarded benefits. While numerical information in member-specific examples is considered acceptable, information that implies a certain course of action is correct is not. That's clear, but again, it leaves trustees and employers to judge how much they can say, and to what extent this is likely to fall short of what they think a member is likely to find useful. The objective here, however, is to help trustees and employers avoid saying too much and overstepping the FCA's rules.
  • The confirmation that schemes are able to provide transfer values to members who have not asked for them is to be welcomed, but trustees and employers will need to consider their motives for providing them in the first place, and ensure that the message that accompanies them does not encourage uptake. The question as to why the exercise would be undertaken without wanting to encourage uptake is one to consider in advance, we suggest.
  • The FCA's view on the restricted use of comparator tools or modellers will be something that the professional firms who provide them will need to consider carefully. While those tools can continue to be offered in the market, the factual basis of the support that employers and trustees are now limited to providing, and the sources of independent information on pensions options that they can signpost to members, seems to place some restriction on the practical use of those tools.
  • Trustees should contact the third party providers of any such tools that they have been using to discuss the Guide and its impact on how the relevant modeller may be applied for their scheme in the future.
  • While the updated guide contains essential practical information for employers and trustees to help them avoid the financial penalties, reputational damage and potential for criminal charges associated with breaking the FCA's rules, The Pensions Ombudsman's follow-up statement is arguably just as important.
  • The Ombudsman's emphasis on the provision and maintenance of a full list of unrestricted IFAs augments the FCA's guidance and raises the bar for trustees and employers. Given the risks and complexities associated with facilitating IFA advice, we question why a trustee or employer would choose to do more than simply provide that full list and invite the member to select an IFA of their own choosing.

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