Trustees need more freedom and less fear about falling into the ‘advice trap’ to help members get better outcomes – LCP

LCP welcomes the proposals from the FCA to enable more people to access advice or support. However, LCP is also calling for trustees to be given more freedom to help their pension scheme members make the best decisions about their pensions.

In their response to the FCA consultation on the Advice Guidance Boundary Review, LCP says that when it comes to providing guidance to members, trustees shouldn’t be put in the same bracket as providers who may have a conflict of interest. Whilst a provider may be more tempted to promote in-house products or more profitable routes for their own firm, trustees are acting in the best interests of members. LCP welcomes the clarification provided for trustees but proposes further guidance provided by the FCA so trustees don’t get caught by rules designed to protect consumers from otherwise potentially predatory providers.

When it comes to communicating retirement options, LCP is calling for trustees to have more freedom to provide more helpful targeted support to members. Trustees tend to communicate the range of options available to members in a factual way, not steering members in any direction and recommending that they take advice on these options. However, many members do not go on to seek advice. It is also very difficult for members to find the advice they need because many financial advisers are not set up to provide such advice in an affordable way.

LCP is also urging the FCA to look again at the joint TPR and FCA guidance published in March 2021 in relation to providing DB transfer illustrations, which banned the practice of providing additional information, such as possible outcomes of transferring. LCP considers providing balanced information would actually be better than simply showing the very large transfer value number in isolation, which can be misleading.

LCP also wants to see change when it comes to how trustees could better support DC pension scheme members during the accumulation phase – whilst still stopping short of giving financial advice - for instance, around investment choices and contribution levels, which could lead to better outcomes for members.

Clive Harrison, LCP Partner, commented: “Whilst I welcome the proposals from the FCA to make advice and support more accessible, I would also like to see trustees given more freedom to support their members. Trustees have no desire to provide financial advice, but they do want to do more to help their members make good decisions.

“We find that trustees can be prohibited from providing helpful support to members as it can be seen as too close or crossing the advice boundary. This includes members saving for retirement and also those making retirement or decumulation decisions. Clearer guidance that recognises overriding trustee duties, and allowing sensible information sharing, would allow trustees to move closer to the advice boundary without fear of crossing it.”