FCA Demands Better Value for Savers in Legacy Pension Products

Quick Summary

The Financial Conduct Authority (FCA) has warned that legacy pension products often provide poorer value than modern alternatives due to complex fees and outdated designs. The regulator is urging providers to adopt consumer duty standards by simplifying products, capping charges, and migrating savers to better-performing funds.

How Does the FCA Address Poor Value in Legacy Pension Products?

The FCA's latest review highlights a significant disparity between modern savings vehicles and legacy pension products that are now closed to new entrants. Many of these older schemes suffer from complex charging structures and fragmented data systems, which prevent savers from maximizing their retirement pots. To combat this, the regulator is highlighting successful industry practices where firms have proactively intervened to protect consumer interests.

• Capping high fees to ensure older products remain competitive with current market rates.
• Rationalizing fund ranges to reduce administrative complexity and improve transparency.
• Proactive customer migration where savers are moved into modern, lower-cost alternatives.

What Barriers Prevent Firms from Improving Pension Value?

While some providers are leading the way, others face significant hurdles in modernizing legacy pension products. The FCA identified that weak data quality and rigid, decades-old IT infrastructures often make it difficult for firms to assess value accurately across their entire book. The regulator is now engaging with firms to identify and remove these barriers, ensuring that the Consumer Duty mandate is applied consistently across both open and closed portfolios.

• Outdated product designs that lack the flexibility of modern digital-first pensions.
• Inconsistent data tracking which obscures the true cost-to-value ratio for long-term savers.
• Regulatory reporting gaps that the FCA intends to close through its Pensions Regulatory Priorities.

"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." said Charlotte Clark, director of cross-cutting policy and strategy at the FCA.

FF NEWS TAKE:

The FCA is drawing a line in the sand regarding legacy pension products. For too long, 'closed book' customers have been treated as a passive revenue stream rather than active beneficiaries. This move signals that regulatory scrutiny will no longer stop at the point of sale; firms must demonstrate ongoing value. This effectively forces a digital transformation on the back-office of traditional insurers, moving the needle toward a more equitable retirement landscape.