Advice Guidance Boundary Review – proposals for closing the advice gap


On 8 December 2023, the FCA and HMT published a policy paper on the advice guidance boundary, with initial proposals to change the way financial advice and support are delivered to consumers. It aims to help develop a regulatory system where “commercially viable models of advice and support can emerge so consumers can make effective financial decisions”.

This includes considering the support that can be provided by trust-based pension schemes.

In this response

Response to question 34

We welcome the work undertaken by the FCA and HMT in this area, which raises important issues for our clients. Our comments are given from an occupational pension scheme perspective, and we focus on Chapter 7 of the policy paper (specific considerations for pension scheme trustees).

Question 34: How do trustees feel the advice boundary restricts the support they want to give, including around decumulation, taking into account DWP’s proposals [to introduce a “default” decumulation option for consumers in trust-based schemes]? Do any other regulated activities or regulatory requirements constrain the support trustees wish to provide? Please give examples.

Regulated advice

As explained in the policy paper, rights under occupational pension schemes are not investments for the purposes of the advising on investments activity under Article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“the RAO”).

However, the regulated advice boundary can become relevant where FCA-regulated products are involved, such as decumulation products or tools provided outside the occupational pension scheme. FCA authorisation is, however, only required if trustees are providing advice on FCA-regulated investments “by way of business”, including if they receive a “commercial benefit” for helping members.

The policy paper notes this means that, in most cases, pension scheme trustees and employers should be able to help members without needing to be authorised. We agree that we would not generally expect trustees to be providing advice on FCA-regulated investments in the course of business, or for a commercial benefit. However, if trustees inadvertently provide advice in relation to FCA-regulated products by way of business, without FCA authorisation, then that would be a criminal offence, which obviously trustees are keen to avoid. This scenario may be more likely to occur if the proposed new duty on trustees to provide a default decumulation solution is introduced. This duty would extend trustees’ current legal duties towards members in decumulation and could be seen as a recommendation to members.

In addition, what constitutes advice for non-authorised persons is a fairly low bar (as covered in PERG 8) – personal recommendations do not need to be given, so any encouragement, inducement or persuasion to take a particular course of action in respect of a specific FCA-regulated product (rather than providing generic advice or factual information) could potentially fall into this category. Understandably, this often makes trustees risk-averse in this area.

Other relevant regulated activities/regulatory regimes

In addition to the regulated advice activity, the other potentially relevant activities are:

  • “arranging” (in particular where trustees wish to refer members to a regulated financial adviser, firm or panel of advisers, or where they wish to “partner” with third-party providers to provide decumulation solutions which are FCA-regulated products), and
  • financial promotions (in particular where trustees wish to “partner” with a third-party provider to provide decumulation options and wish to signpost members to this option).

Wider trustee considerations

Pension scheme trustees must also negotiate another “boundary” when providing support to members. They must be careful that such support does not involve “advice” of any form, even if this doesn’t constitute a regulated activity, eg because trustees are providing support about the options under their own scheme, or are not doing so in the course of business/receiving a commercial benefit, or because they are providing generic rather than specific advice about FCA-regulated products.

Although there are various information disclosure requirements, trustees do not currently have a legal duty to provide advice to members about their pension rights and options, and this is outside the scope of their fiduciary duty to act in the interests of all members. Unlike regulated advisers and providers, trustees do not have a direct contractual relationship with each individual member. Providing such advice could lead to liability for trustees if members rely on it and then suffer financial loss.

In addition, whilst trustees may be able to get comfortable that they are not carrying out the arranging activity by referring members to an independent financial adviser (“IFA”), they also have to be aware of the risk of a maladministration claim if a member receives inadequate advice and suffers financial loss. It was made clear in the Pension Ombudsman’s March 2021 guidance on appointing IFAs that trustees would be “generally be in a stronger position” in relation to such a complaint if they could show, for example, that they had undertaken sufficient due diligence in relation to, and appropriately monitored, the IFA.

Areas where further clarity would be helpful

In our experience, trustees are coming across grey areas in relation to providing guidance/advice to members and/or signposting members to FCA-regulated products or advisers more frequently as the retirement market develops. We expect that trend to continue. As the DWP and the FCA recognise, the proposed duty on trustees to provide decumulation products and services (including a default) is likely to blur the lines further. A lack of clarity here can encourage a risk-averse approach to helping members with their retirement choices. In our view, this is a significant constraint on the support trustees provide to their members.

The following are specific situations where a lack of clarity can arise:

  • DC master trusts provided by financial services firms who also provide other pension products which are FCA-regulated, and where products are developed to sit within all pension wrappers. Master trust members may also be given information about and access to wider provider FCA-regulated products and services. The provider in this scenario is FCA-regulated and must comply with FCA requirements for its broader regulated pension products, and understandably wishes to apply a consistent approach across its whole portfolio, but the trustees of the master trust have separate obligations and requirements in relation to the master trust as an occupational pension scheme. The role and responsibilities between the trustees and the provider can become confused/blurred.
  • DC occupational pension schemes which partner with, and signpost members to, third parties for decumulation products and services with negotiated/preferential terms/rates for scheme members. Where the third party is not an occupational pension scheme (ie not a master trust) and so the products are FCA-regulated investments, it can be unclear in what circumstances (if any) trustees could be considered to be providing regulated advice or carrying out the arranging activity by way of business/for commercial benefit, or could be making financial promotions in the course of business, and whether they could be seen to be “advising” members more broadly.
  • DC pension scheme trustees providing information and support to their members via third party services. For example, providing access to independent financial advice (and the circumstances in which this can result in arranging activity), or access to external digital platforms/modellers which present tailored information to members based on members’ data/responses to questions (and the circumstances in which this can result in providing advice).
  • As mentioned above, it will be important to ensure there is sufficient clarity as to the boundaries for trustees in relation to the proposed new duty to provide a default decumulation solution. In our view, there is potential for this to blur the “advice” boundary, particularly if trustees are expected to take members’ personal circumstances into account in providing a decumulation solution.

It would therefore be helpful to further clarify both:

  • the regulated advice/arranging boundary and the financial promotion regime as it applies to pension scheme trustees, and
  • the wider boundary between providing general (ie non-regulated) advice and guidance/information and how this fits with trustees’ fiduciary duties,

in specific practical circumstances such as those outlined above, to give real-world practical context.

This could be achieved through PERG or joint FCA and TPR guidance, building on the March 2021 guide for trustees on providing support. It may also be helpful to have separate TPR and/or Pensions Ombudsman guidance on the wider points not related to the FCA regulatory regime.

We expect that trustees will continue to come up against new scenarios which are grey areas, as the pensions landscape is changing rapidly. Alongside the DWP’s decumulation proposals, several other important policy developments are on the horizon (not least dashboards, automated consolidators, collective DC schemes, etc). It will be important that any guidance is kept under review and updated regularly to ensure it reflects the current real-life situations trustees must grapple with.

We recognise that legislative change may be necessary in due course to enable trustees to navigate the FCA regime in the future while complying with their other legal and fiduciary duties, and depending on the detail of the new decumulation requirements. But we think there is a real and current need for the clarity and comfort that guidance could provide trustees. More certainty about the steps trustees can take without overstepping the relevant boundaries could have a significant positive impact on the support provided to members, ultimately helping to improve member outcomes.