The Financial Conduct Authority has warned that millions of consumers holding older pension products may be receiving poorer value than customers invested in newer products. Following a multi-firm review of unit-linked non-workplace pensions and long-term savings products, the regulator found that complex charging structures, outdated product designs and weaknesses in firms' customer data are preventing some savers from receiving value comparable with more modern pension products. The findings form part of the FCA's ongoing Consumer Duty work and increase pressure on firms managing closed books of business to demonstrate that existing customers continue to receive fair value.
FCA Identifies Complex Charging Structures In Legacy Pensions
The FCA review identified four primary issues affecting legacy pension customers. Complex charging structures mean customers may pay higher costs than necessary. Older product design means legacy products may deliver poorer value than newer alternatives. Weak customer data means firms may struggle to identify customers receiving poor outcomes. Closed books mean customers risk remaining in outdated products for many years.
The FCA stressed that being invested in an older pension product should not automatically mean receiving worse value. However, the regulator found evidence that some firms have yet to address structural issues affecting customers whose pensions remain in products no longer offered to new investors.
Some Firms Already Simplifying Legacy Pension Products
The review highlighted firms that have taken steps to improve outcomes for customers in legacy products. Examples included simplifying or consolidating older pension products, reducing or capping charges, comparing customer outcomes across different products and transferring customers into better-value alternatives where appropriate.
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."
What Legacy Pensions Are
A legacy pension is generally an older pension product that remains in operation for existing customers but is closed to new business. Many of these products were launched years or even decades ago under different regulatory regimes, charging structures and investment approaches.
Although they continue to operate, firms may devote fewer resources to developing or updating them because they no longer generate new sales. That does not necessarily make them poor products. Some continue to perform well. However, they may contain higher charges, fewer investment options or administrative processes that have not kept pace with more modern pension offerings.
Consumer Duty Framework Requires Fair Value Throughout Product Lifetime
The FCA's review was conducted under the Consumer Duty framework, which requires firms to deliver good outcomes for retail customers throughout the life of a product, not only when it is sold. That principle has increased regulatory scrutiny of closed-book products across financial services.
Historically, firms often focused innovation and pricing improvements on products attracting new customers while existing customers remained invested in older products with relatively little change. Under Consumer Duty, firms are expected to assess whether those legacy customers continue to receive fair value.
FCA Highlights Customer Data Quality Concerns
One of the FCA's concerns relates to the quality of customer data held by pension providers. Without reliable information, firms may struggle to identify customers paying relatively high charges, holding unsuitable investments or remaining in products that no longer represent good value.
Better data also allows firms to compare outcomes across customer groups and identify opportunities to improve value. As pension providers modernise administration systems, data quality is becoming almost as important as investment performance itself.
FCA Sets Expectations For Firms Managing Legacy Products
The FCA outlined specific expectations for firms. Firms should review legacy products to assess whether customers continue receiving fair value. Firms should simplify product ranges to reduce unnecessary complexity. Firms should review charges and consider reducing or capping fees where appropriate. Firms should improve customer outcomes by moving eligible customers to better-value alternatives. Firms should strengthen data quality to improve monitoring of customer outcomes.
The FCA said it will continue engaging with firms to understand barriers preventing improvements, particularly where legacy products are held within closed books.
Why This Matters For Pension Savers
Many consumers rarely review older pension products, particularly workplace pensions established years earlier or personal pensions opened before changing employment. As a result, customers may remain invested in products whose charging structures or investment options no longer compare favourably with those available today.
The FCA is not suggesting that consumers should automatically transfer pensions. Pension transfers require careful consideration of charges, investment strategy, guarantees, tax implications and retirement objectives. Instead, the regulator's message is directed primarily at providers: customers who remain loyal to older products should receive value comparable with newer customers wherever possible.
FAQ
What did the FCA find in its review of legacy pension products?
The FCA found that complex charging structures, outdated product designs and weaknesses in firms' customer data are preventing some savers from receiving value comparable with more modern pension products. The review covered unit-linked non-workplace pensions and long-term savings products.
What actions have some firms already taken to improve legacy pension products?
Some firms have simplified or consolidated older pension products, reduced or capped charges, compared customer outcomes across different products and transferred customers into better-value alternatives where appropriate. The FCA highlighted these as examples of good practice.
What does the Consumer Duty framework require from pension providers?
The Consumer Duty framework requires firms to deliver good outcomes for retail customers throughout the life of a product, not only when it is sold. Under Consumer Duty, firms are expected to assess whether legacy customers continue to receive fair value.
