FCA Warns Legacy Pension Savers May Be Paying More For Less…
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, as it called on pension providers to improve legacy offerings that have been closed to new business for years.
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non-workplace pensions and long-term savings products, the regulator found that complex charging structures, outdated product designs and weaknesses in firms’ customer data are preventing some savers from receiving value comparable with more modern pension products.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 rather than simply maintaining legacy products with little ongoing review.
What The FCA Found
| Finding | Impact On Customers |
|---|---|
| Complex charging structures | Customers may pay higher costs than necessary |
| Older product design | Legacy products may deliver poorer value than newer alternatives |
| Weak customer data | Firms may struggle to identify customers receiving poor outcomes |
| Closed books | Customers risk remaining in outdated products for many years |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.
Good Practice Already Exists
The review also 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.”
Education: What Is A Legacy Pension?
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.
| Open Pension Product | Legacy Pension Product |
|---|---|
| Accepts new customers | Closed to new customers |
| Regularly updated | May retain older structures and features |
| Current pricing models | May contain historic charging structures |
| Modern investment options | Investment choices may be more limited |
Why Consumer Duty Matters
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.
Why Data Is Becoming A Regulatory Issue
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.
The Wider Pension Reform Agenda
The review forms part of a broader programme of pension reform.
The FCA said the work complements initiatives including targeted support and pensions dashboards, both of which aim to help consumers make better retirement decisions.
Targeted support is intended to help firms provide more personalised guidance without crossing into regulated financial advice, while pensions dashboards are expected to make it easier for consumers to view multiple pension pots in one place.
Together, these initiatives are designed to improve engagement with long-term retirement savings while increasing competition based on value.
What Firms Should Do
| FCA Expectations | Potential Action |
|---|---|
| Review legacy products | Assess whether customers continue receiving fair value |
| Simplify product ranges | Reduce unnecessary complexity |
| Review charges | Consider reducing or capping fees where appropriate |
| Improve customer outcomes | Move eligible customers to better-value alternatives |
| Strengthen data quality | 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.
Outlook
The FCA’s review reinforces an increasingly important regulatory theme across financial services: firms cannot focus only on winning new customers while existing ones remain in outdated products.
Consumer Duty requires firms to demonstrate that products continue delivering fair value throughout their lifetime, including those that have long since been withdrawn from sale.
For pension providers, that is likely to mean further reviews of charging structures, product design, customer data and migration strategies over the coming years.
The regulator has already pointed to examples of firms improving outcomes through lower charges and product rationalisation. It now expects those practices to become standard across the market rather than isolated examples of good practice.