Unit-linked pensions and savings: Multi-firm review of Consumer Duty price and value practices

Our findings will interest:

• Life insurers with unit-linked offerings.
• Financial advisers.
• Consumer groups.
• Trade bodies.

Firms with limited or no unit‑linked non‑workplace pension or savings business may also find the good practices below helpful when assessing value across their products.

Unit-linked funds are used across 3 main segments:

• Pension accumulation – defined contribution (DC) workplace and non-workplace schemes, self-invested personal pensions (SIPPs) and additional voluntary contributions.
• Pension decumulation – pension drawdown.
• Life insurance-based savings – endowments and investment bonds.

We focused on unit-linked non-workplace pension and savings contracts. We did this because:

• Unit-linked non-workplace pension and savings policies account for around 17m policies and £500bn of assets.
• There are many older policies and smaller pots in this market.  
• Evidence from our Financial Lives Survey[3] indicates that customers do not always understand investment charges and that engagement with pensions can be low. This increases the importance of firms being able to show they are delivering fair value. 

We requested data from a sample of life insurers, covering around 90% of total policies in the market.

We asked for information on charges, investment performance and firms’ approaches to assessing fair value.

Firms also provided examples of fair value assessments for a range of open and closed products.

We analysed the data, noting that charges and investment performance information is not standardised across firms. This means it is not possible to make straightforward firm‑to‑firm comparisons.

We discussed our observations with firms and asked for details about changes they have made to improve fair value for customers since the Duty came into force.

We also asked firms to explain the challenges they face in improving value for customers. 

Around half of the policies in our sample were in ‘legacy’ or ’closed’ products (products that do not allow new sales).  

There are hundreds of closed product variants and thousands of unit‑linked fund variants. This variation, and the fact some policies have been in existence for several decades, makes the closed book market very complex.

Firms often operate multiple administration systems across different product types. Data availability and quality can vary across systems. This can lead to inconsistent approaches to assessing value.  

Maintaining multiple systems can also increase operational risk and cost. 

Our analysis indicates that customers in older products are more likely to receive poorer value than customers in newer products. This is consistent with our findings in FS19/5, ‘Effective competition in non-workplace pensions[7]’, which highlighted that older non‑workplace pension products can attract higher charges.

Customers with older products often receive poorer investment returns.  

In some instances, this is due to higher aggregate fees (that is, product fees, fund fees, commission). They may also have access to fewer service features, for example, online account functionality. 

Most firms acknowledged that some customers in legacy products are likely to receive poorer value than customers in comparable open products.

Legacy products often have complex charging structures, with multiple components contributing to the total cost to the customer (for example, product and fund charges including both fixed and percentage charges). This can make it difficult for firms to monitor charges and assess value at product level, and to identify where products may not be delivering fair value.

Historic charging practices were often more complex. These are likely to impair customers’ ability to understand their charges and compare them to similar, more modern products.  

Complexity of legacy books presents challenges for firms in meeting the requirements of the Duty.

Firms are allowed to analyse cohorts of products together for the purpose of a fair value assessment. However, we saw this approach often led to very broad judgements about the level of value provided, without taking reasonable account of significant variations.

Firms did not always have clear understanding of the exact nature and value of all legacy policy benefits. One reason for this is the poorer data quality from legacy systems. Often, this data did not allow firms to analyse product benefits or customer trends consistently.

Most firms told us that simplifying legacy products and funds could improve customer outcomes.

Some firms have started simplification programmes, and others have plans to do so.

See examples of simplifying products and funds.

Simplifying business, although requiring work up front, is likely to lead to operational efficiencies for firms. It will also show that firms are acting to deliver good outcomes.

A simpler product and fund range, held on modern IT systems with improved data capabilities, would make it easier for firms to conduct sufficiently granular value assessments.

Some firms were in the process of simplifying or rationalising their unit-linked products and funds or had concrete plans to do so. With appropriate governance and outcome testing, this can support fair value for customers in legacy pensions and savings business.  

We saw firms with a clear path to a simpler set of products and funds. As part of this, firms identified that large numbers of customers would be better off by moving out of legacy products and funds into newer or alternative ones.  

There are challenges to any approach. One of the primary challenges is maintaining potentially valuable benefits in legacy products (such as guarantees). However, the good practices we saw included developing a solution to maintain such benefits while making sure customers still benefited from the features of a newer or different product. For example, lower charges and improved servicing.

Some firms vary customer contracts as a way to deliver fair value for legacy customers. This includes in circumstances where they recognise there may be legal or contractual risk in doing so. This is usually done where the firm is confident the new product would be better for customers.

Where firms have proceeded on such a basis, we have expected them to mitigate any detriment arising. This is alongside meeting the ongoing requirements of the Duty, including avoiding foreseeable harm.

It is also important for firms undertaking product or fund consolidation to make sure communications to customers are clear and not misleading.

Some firms had completed fund rationalisation programmes, and others told us they were considering doing so.  

Firms told us they expected rationalisation to make fund governance and oversight more straightforward and, in some cases, reduce costs.  

We saw some evidence that larger funds had performed better over the periods we reviewed.

Firms identified funds which had:

• Poorer returns (or poorer performance against benchmarks).
• Higher ongoing charges figures (OCFs).
• Similar profiles to other funds.

Firms generally told us there were few barriers to conducting fund rationalisation programmes. Contracts often gave firms permission to move customers to different funds where it was in the customer's interest. For example, to move out of an underperforming fund.  

However, customers remain invested in funds selected many years ago. This is even though investment objectives, risk characteristics and market conditions have changed over time. Options chosen many years ago, that were reasonable at the time, may not be now.  

While firms may be wary of moving customers out of funds they may have previously agreed to, firms should consider the risk profile of their customer and make decisions to best ensure they receive the desired investment. 

We saw evidence that some firms had made material reductions to charges for a significant number of customers in legacy products. In these examples, firms simplified charging structures and brought overall charges more in line with comparable open products.  

In some cases, firms also introduced caps on annual management charges.  

We consider that simplifying charging structures can help customers understand the charges they pay. It can also help firms to monitor and evidence fair value outcomes.

Firms told us their analysis considered factors such as:

• Charges on comparable open products.
• Removing charge components that were no longer appropriate (for example, legacy commission arrangements)
• Removing fixed charges for smaller pots where there was a risk of fund erosion. 

Some firms had identified and assessed the value of different policy features. For example, by analysing take‑up rates for guaranteed annuity rates.  

Looking at different policy features helped firms to:

• Understand the value delivered to customers.
• Decide whether changes to products or charges were needed.

Where firms had multiple legacy policy types with different features and benefits, they took steps to improve data and management information (MI) to assess the nature and value of such benefits.

Where firms had many different products, some firms were able to compare value across the range.  

Comparison of value is important, given there were often significant similarities between products and outcomes sought by customers.

The Duty does not require identical outcomes for all customers. However, the most effective fair value assessment approaches considered whether differences in fees, charges or rates across comparable products are justified by differences in benefits. This is in line with the Duty’s Final Guidance[6] (FG22/5) which prompts firms to consider:

'Are there fees or charges or rates which appear unjustifiably or unreasonably high compared to the benefits of the product and other comparable products (either in the firm’s product portfolio or comparable products supplied by other firms)?'

The Duty requires firms to make sure their products provide fair value to different groups of customers.

In the fair value assessments we reviewed, firms often considered outcomes for customers in vulnerable circumstances.

However, in the strongest examples, it was made clear how outcomes for other groups of customers had been considered. For example, long-standing customers compared to newer customers, or customers with smaller pots. Some firms could describe how outcomes differ across cohorts and, where they do, provide evidence on why those differences are justified, or why a change needs to be made.

The Pension Schemes Act 2026[8] contains provisions which will allow pension providers to override or amend the terms of a pension scheme without the individual consent of members (known as contractual override).  

These provisions are intended to support improved outcomes for savers and apply to workplace pensions only.

Firms have consistently told us they would support extending contractual override to include non-workplace pensions.  

We will continue to engage with HM Treasury and other relevant stakeholders on whether, and how, any extension could be considered.

Regardless of contractual override considerations, these good practices show there are already ways for firms to improve customer outcomes. This applies to both unit-linked non-workplace pensions and savings products.  

Some firms noted that some customers would have received advice before investing in their unit-linked products. Those firms may be reluctant to move customers to a different product or fund against this advice. However, given the age of these closed books, many customers will no longer have a relationship with the same, or any, financial adviser. An alternative product may be more suitable for them now. Advice provided potentially several decades ago should not prevent firms delivering value to customers now. Moving a customer to a product which provides better value, or a similar fund which provides better value, would not be unreasonable in principle.

Some firms told us they are cautious about making changes to customers’ products or investments because they are concerned about how complaints might be considered by the Financial Ombudsman.

The Financial Ombudsman is an independent organisation, but in considering what is fair and reasonable, the Financial Ombudsman must take into account matters such as our rules, guidance and standards, as well as good industry practice.  Setting out firms’ good practices above provides greater clarity for the Financial Ombudsman.

The FCA and Financial Ombudsman are committed to working collaboratively[9]. This includes provision for the Financial Ombudsman to seek a view from us on our interpretation of rules where necessary.

The government is also conducting a review of the Financial Ombudsman Service[10]. Its legislative plans include:

• Adapt the ‘Fair and Reasonable’ test used by the Financial Ombudsman to determine cases, to more closely link it with FCA rules.
• Formalise the referral mechanism in legislation, requiring the Financial Ombudsman to seek a view from the FCA on the interpretation of FCA rules where the Financial Ombudsman considers there is ambiguity that needs resolving.

If a firm has made changes in good faith, with a view to improving customer outcomes, we would not view this as evidence that legacy products did not provide fair value. Rather, we’d view it as evidence of proactive monitoring and taking steps to improve customer outcomes which is consistent with the Duty rules. This would be an important consideration for the Financial Ombudsman if it were to review a related complaint in the future.  

Some firms told us they would like to contact customers more proactively. They would like to help customers understand whether they may be able to access better value. However, firms were also uncertain about what they could do.

The FCA, ICO and The Pensions Regulator (TPR) have previously issued a joint statement to provide greater clarity on this point.

This statement notes that: ‘Firms can provide regulatory communication messages to retail customers and pension scheme members that provide neutral, factual information that supports them to make informed decisions about retail investments and pensions options, including at retirement.’

Read the full statement from FCA, ICO and TPR[11].

The ICO has published direct marketing and electronic communications guidance[12], which includes examples of communications to help show firms what does and does not constitute marketing material.

The ICO has also produced a direct marketing advice generator[13] which can provide tailored direct marketing advice and help firms feel more confident they are using people’s information in the right way.

We expect firms to use the clarifications and examples when considering customer communications.

Where firms have specific concerns about contacting customers in line with the joint statement or the ICO’s direct marketing guidance, they should consider engaging with the ICO and, where appropriate, with us. 

Firms advised us of several potential areas where HMRC rules might cause challenges when firms seek to make proactive changes to customers’ products or investments. Such issues may vary depending on the type of product, with different considerations for pension and savings products.  

Where firms consider that HMRC rules materially limit their ability to remediate poor value, we expect them to engage with us promptly. This includes setting out the steps they plan to take to improve customer outcomes. 

Many legacy unit-linked contracts are administered on older IT platforms.  

We found these systems did not always produce data that was sufficiently complete, consistent or granular to support robust fair value assessments.

Data and systems limitations do not remove firms’ obligations under the Duty.  

We acknowledge data challenges. But we expect firms to make sure they can access the data needed to monitor outcomes and evidence fair value on an ongoing basis. This includes for closed products.  

Where firms identify gaps, we expect them to take timely and proportionate action to address them, which may include system changes. 

Many insurers outsource some or all administration functions to third-party providers.

Firms should work closely with outsourced service providers to make sure they can deliver the level of data and change that may be needed.

We will hold insurers accountable for complying with the Duty and the outcomes their customers receive.

Many firms indicated that a significant portion of customers are ‘gone-away’. This means the firm has lost contact with the policyholder. This prevents the firm engaging with the policyholder to potentially improve outcomes.  

We have previously made clear that firms should take reasonable steps to reconnect with customers[14].  

We’ve seen good examples of firms taking proactive steps. This includes industry-wide initiatives to better trace customers.  

An inability to contact customers does not remove firms’ obligations under the Duty. Firms should take appropriate action to monitor outcomes and address poor value. This includes applying measures set out in our good practice examples, where these can be implemented without customer contact.

We plan further work on ‘gone-away’ customers in 2026 as part of our wider priority to modernise pensions and long-term savings[15]. We will engage with industry on this.

There are other initiatives under way that will influence how firms can deliver fair value to pension customers, including in the areas below.

We encourage firms to think holistically about how consumers’ experience can be improved.