How are pension schemes dealing with vulnerable members?

The FCA defines the four drivers of vulnerability as low financial resilience, poor health, recent negative life events and low capability – and with nearly 25 million people showing at least one of these signs, the widespread nature of the challenge has prompted considerable regulatory action.

In 2023, the FCA's Consumer Duty set out new standards for how FCA-regulated firms – including contract-based pension providers – should treat vulnerable customers. Similarly, The Pensions Regulator (TPR) – which regulates trust-based defined benefit (DB) and defined contribution schemes (DC) – also considers it essential to recognise that any pension scheme member can be vulnerable and included guidance on how to communicate with vulnerable members in last year's General Code of Practice.

Spectrum of risk

Speaking to Professional Pensions, an FCA spokesperson describes a vulnerable customer as someone who "due to their personal circumstances is especially susceptible to harm", particularly when a firm is "not acting with appropriate levels of care".

The FCA says it sees vulnerability as a "spectrum of risk" with all customers at risk of becoming vulnerable. It adds this risk is increased by having "characteristics of vulnerability" which include poor health, life events, low resilience to cope with "financial or emotional shocks" and low capability. 

Characteristics associated with the four drivers of vulnerability

Source: FCA

Fiduciary duty

A TPR spokesperson concurred with the FCA – describing vulnerability in the context of a pension scheme as "a state where personal circumstances make individuals especially susceptible to harm".

The spokesperson noted trustees of workplace schemes have a "fiduciary duty" to act in the best interests of all their members, including those who may be considered vulnerable.

"Trustees are expected to identify and support members by ensuring their needs are considered in the design and operation of pension schemes. This includes understanding members' views and needs to facilitate informed decision making across the member's pensions journey."

Not straightforward

Vidett client director Sarah Booth says defining vulnerability in the context of a pension scheme is not "straightforward" since schemes and advisers are interacting with members during "challenging" times such as bereavement, health diagnoses and "other significant life changes". She says it is therefore crucial to ensure members have access to and can understand member communications, or that there is a "clearly nominated" person who can act on their behalf.

She says: "Without this, members may lack the necessary information to make good and informed decisions, and this can increase their vulnerability. This is particularly relevant for older members, who may not have access to digital and online solutions."

Aptia UK president Malcolm Reynolds notes that TPR has recognised the importance of "high-quality" administration and member engagement when it comes to the regulation of how schemes should deal with vulnerable members.

He explains that, while there is "no single regulatory framework", industry best practices emphasise the need for proactive identification of vulnerable members and adapting processes accordingly – making communication accessible and inclusive to ensure members can engage with their pensions in a way that suits their needs, and reducing unnecessary complexity, particularly for those facing bereavement or health challenges.

Reynolds adds: "We believe the focus should not just be on meeting regulatory expectations, but on delivering a genuinely supportive and effective service for all members, particularly those in vulnerable situations."

Closely aligned

With regulators setting out their position on how pension providers should address the issue of vulnerable members, how does the industry define the characteristics of vulnerability in the context of a pension scheme and what measures are schemes, administrators and bulk annuity providers taking to address this issue?

Aviva head of pension engagement Laura Stewart-Smith says its definition of vulnerability is "closely aligned" with that of the FCA. She defines it as a customer who due to their circumstances is "susceptible to harm" which requires Aviva or a partner to "provide an enhanced and focused level of care".

She says from the provider's perspective, the FCA's guidance helps it to interpret what would be the appropriate level of support it offers to different cohorts of members across its workplace scheme.

"We look at opportunities to improve the service that we offer to members based on the FCA's guidance. More recently, we've seen the Consumer Duty legislation reinforced that guidance is still appropriate."

The People's Pension (TPP) proposition director Kirsty Ross notes that, while TPP is regulated by TPR, it also has a "strong alignment" with the FCA's work in this area and has chosen to adopt the FCA guidance on the fair treatment of vulnerable members. She says the principles of Consumer Duty are particularly important for those who could be seen as vulnerable.

Ross explains: "When we think about it through the lens of the regulator, we have a very similar approach – making sure that we can identify who our vulnerable customers are and what their specific vulnerabilities are; making sure that we can understand their needs; making sure that we're able to meet their needs and that we can really communicate clearly and in a simple way.

"Part of that is making sure that we've got the skills and the capabilities within the organisation, so product designers, frontline staff right up executive and board level, making sure that everyone's appropriately trained and skilled in the topic."

Guide and inform

Universities Superannuation Scheme (USS) chief pensions strategy officer Mel Duffield says the USS, which TPR also regulates, also uses the FCA's definition to "guide and inform" how it approaches the issue of vulnerability among its members.

She notes the scheme's principles of "providing the right interventions" and the "guidance and support" it provides for vulnerable members and their beneficiaries are the same for both its DB and DC members.

Duffield explains: "Across both, the potential for vulnerable members or beneficiaries to be targeted by scammers is ever-present and we are very mindful of this, particularly in respect of bereavement support. There is also the risk of poor outcomes for members with low resilience or capability if appropriate guidance and advice is not available.

"We want to help members plan for their retirement with confidence, and providing the right support and safeguards is vital to achieving that."

Pension Insurance Corporation (PIC) vulnerable customer officer Ashley Roberts says from the perspective of the specialist DB insurer, measures to deal with vulnerable customers represent a "core element of accessibility".

He asks: "Are we making it easy for people to engage and contact us and are we making sure our policyholders can understand the things which are important to their pension, such as what benefits they have, what options do they have as they come to retirement and what is happening with their payments?"

Not static

TPP's Ross says the "harm" referenced by the FCA in its definition would translate to a poor outcome in retirement and believes it is "really important" for schemes to speak to their members and give them support throughout their pensions journey due to the complexity of pensions.

Ross says: "At TPP, we have seven million customers who have been automatically enrolled, so they have not made an active decision to be in what is a complex product. Therefore, we must be cognisant of the fact that if we do not give them the support when they need it, they might not have the skills or the knowledge to make decisions that are conducive to good retirement outcomes.

"This is exacerbated when it comes to vulnerable customers as they might be more susceptible to fraud, or maybe they just don't understand the product, or they don't know how to access those products or services due to their own specific vulnerability."

Ross adds that it is important for the industry to remember vulnerability is "quite personal" and there are a "vast" range of vulnerabilities to consider. She also says these vulnerabilities may change over time.

She explains: "If you think about how much your own personal circumstances change over the course of that time, vulnerabilities will change as well. Therefore, I do not think defining vulnerability is necessarily a one point in time occurrence, it's something that we must continually evolve and look at and update our understanding of what that means for our customers."

Aptia's Reynolds agrees vulnerability is "not static". He says: "Given that over 60% of our DB members are already drawing their pensions, and we often look after them for 20 years or more, we are acutely aware that vulnerability can evolve as members age. In fact, 35% of the dependant members who first contact us following a bereavement are over 80 years old. These factors shape how we deliver our services, ensuring we provide appropriate and empathetic support tailored to the specific needs of those who may be vulnerable."

Dedicated services team

With schemes and the wider industry acknowledging the importance of recognising vulnerability among the members of their schemes, what are some of the measures they are taking to address and tackle this issue?

USS says it has a "dedicated" member services team and invests in providing them with the training and support required to identify and respond to members' individual circumstances and needs.

USS's Duffield says: "The team provides multi-channel support but is, importantly, available by phone as many people in vulnerable circumstances are digitally excluded and we know from our regular surveys that members, or their dependants, who have suffered a bereavement really value speaking to someone."

Duffield explains the scheme recently tasked psychological consultancy Lexxic to conduct an audit of its core member-facing content and collateral - including operational letters, core web pages and statutory communications. She says the review found the content was in "good shape" and had received "positive feedback" on the content's style and tone.

She adds USS's member communications team have also undertaken specialist training with a behavioural psychologist from Lexxic to gain a deeper understanding of the range of neurological differences and to help them ensure its member-facing content is "as accessible and inclusive as possible". Duffield says USS also has a dedicated guidance and advice page that signposts members to independent financial advisors – adding that, for members with low literacy or financial awareness, the scheme has repackaged its free guidance webinars into bite-sized videos to make them easier to digest.

First point of call

Vidett's Booth says it is "crucial" for its trustees to remain fully up-to-date with all the latest guidance and regulations to ensure they can take the "appropriate" action for the members they protect.

She explains her firm provides training for its team members around the latest guidance, which includes "real life-examples" of how members can be impacted if they do not have access to "all the information they need".

Booth adds the firm recognises, in the circumstances of a "life changing" event, the first point of contact is often the scheme's administrator, and notes it is therefore "crucial" to understand a admin provider's response to these situations.

She explains: "Administrators collect lots of information that can help identify and support vulnerable members - such as power of attorney details, large print or braille requirements, and the identification of beneficiaries through member tracing exercises - and they then have standard processes to deal with these. Working with a third-party adviser, trustees can ensure that the experience a member receives during these events is supportive and efficient."

Embedded initiatives

Stewart-Smith says Aviva carries out annual training across all roles globally with "more focused" training for its operations teams dealing with more challenging circumstances. She explains Aviva looks for opportunities to partner with organisations like the Samaritans to develop its understanding of what it can do to provide support for vulnerable members and the challenges they face.

She says these organisations give us an understanding that we can then input into our processes and procedures. "We try to work with organizations to really ensure that we're building our knowledge."

Stewart-Smith notes the provider also has an in-house resource which gives team members who are providing support to people in vulnerable situations information on what to do if a customer discloses they are facing such circumstances and if there is an "immediate risk" or "need for safeguarding".

She adds initiatives to provide support to vulnerable customers are "embedded" within the organisation, noting, for instance, the work it does when it comes to product design. She explains the provider considers factors such as how would a product work for members with vulnerability and says products go through assessments to ensure they are "fit for purpose".

Stewart-Smith explains: "From that perspective, there are a number of vulnerable customer champions who might be brought in to add insight into the development of what we're doing, and we consider it in all of the engagements that we do.

"We are looking at kind of accessibility and whether our communications need to change in line with things like neurodiversity, or whether we are looking at helping people to understand the way in which we word things, or the use of numbers. We've done external customer testing to try and really embed that consideration."

A productive partnership

TPP's Ross says the master trust has formed a partnership with financial wellbeing platform Nudge, which all of the scheme's members have access to as standard. Nudge provides them with personalised content based on what the individual member expresses an interest in.

Ross says: "It might be to do with managing pensions, but equally, it might be to do with debt management or managing a weekly budget, which is very relevant to all of our customers and also to vulnerable customers."

She adds that the firm's partnership with Nudge enables it to analyse what articles the customers are looking at and how they are engaging.

Ross explains: "If we see that our customers, hypothetically, are particularly interested in debt management, then we can take that insight and use it to evolve our proposition, to help support customers in that way."

No one size fits all

PIC's Roberts notes his firm's general approach to its customer experience and service is to treat all its policyholders as individuals. He adds this is particularly key when it comes to vulnerability, when it is important to think about the specific details of the events in people's lives.

He explains: "What happens if one of our policyholders passes away and a family member, such as a son or daughter, or a spouse needs to get in contact to inform us about the bereavement? Are there spousal benefits that need to be paid and how do we look after and support that person?"

Roberts adds that there may be some additional challenges in the form of physiological changes which come with age such as loss of sight or hearing, but even with those challenges, he stresses the industry's approach to dealing with vulnerability cannot be a "one size fits all" since the industry will be dealing with "people in different stages of their life with different situations". 

Continuous improvement

With the risk of vulnerability among pension scheme members an ongoing concern for schemes to contend with, the FCA earlier this month published its findings of a review into the treatment of customers in vulnerable circumstances. The review found while many of the firms it regulates had taken positive action, it also found there were areas for improvement. 

The FCA's spokesperson notes: "They must make sure they are learning and improving continuously and must be able to evidence this in their annual board reports."

Not a niche issue

TPP's Ross reiterates it is essential to bear in mind the complexity involved with pensions – particularly given the lengthy journey members find themselves on and the inertia that comes with that. After all that, she says they are being confronted with one of the "most complicated decisions" of their financial lives at retirement.

Ross says: "Customers now are faced with investment risk, longevity risk, inflation risk, and they've got to try and understand all of that. For vulnerable customers, that is particularly difficult, and so I think there's more the industry and regulators can be doing to try and ease some of that decision burden."

Aptia's Reynolds says the industry needs to continue its work to ensure that all pension scheme members "regardless of their circumstances" receive the level of support they need.

He says: "Vulnerability is not a niche issue; it is something that affects many pension scheme members at different points in their lives. By continuing to adapt, innovate, and listen to the people we serve, we can build an industry that truly puts members first."