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Vulnerable clients and the pension journey

21 November 2017

Failure to consider the needs of vulnerable clients could clearly result in poor client outcomes and it also constitutes non-compliance with the FCAs principles, rules and expectations. Clare Moffatt, Senior Technical Manager at Prudential looks at this topical area in detail.

Such is the importance attached to the issue of vulnerable clients, the FCA called it out as a priority in their 17/18 Business Plan –  (Chapter 6, page 51 and throughout the document)in which they state “The overarching principle of fair treatment is important wherever consumers interact with financial services firms, and in particular when consumers are vulnerable. We want to see harm to consumers reduced”.

The FCA then go onto detail some of the ways in which harm could be reduced; recognising when clients are or may become vulnerable and tailoring responses to deal with the situation, making products easier to understand and so on. It is important to recognise vulnerable clients but that might not always be as easy as you think. In addition, it is useful to think about the pensions journey and when a client might be vulnerable.

What is a vulnerable client?

A vulnerable client is anyone whose decision to transact may be negatively influenced by circumstances or factors which, if not present would likely result in an alternative course of action.
While most will think immediately of the elderly it also includes, but is not limited to, individuals:

• Displaying cognitive aspects such as lack of literacy, numeracy; low level of understanding; learning difficulties; mental health (wellness), mental capacity (ability).
• Undergoing life changing events such as bereavement, divorce/separation, financial difficulties, serious ill health/serious injury (or caring responsibilities in relation to these).
• Accessibility barriers such as, language, visual/hearing/speech impairment.

However, it could include any scenario that means a client is unable to demonstrate that they have a clear understanding of the process or options available to them.
Not all clients will directly make their adviser aware of their additional support requirements and it is key to listen out for and pick up on/probe into any ‘triggers’ during the interaction and act accordingly.

Some examples might include a client providing information on a medical conditions that highlights a potential need for additional or bespoke support. It can also be where a client identifies that they don’t understand and you might hear questions statements such as ‘this is an awful lot of information to take in’, ‘why can’t you just tell me what to do’ or you are asked to clarify the same point repeatedly. Pensions are a complex wrapper and it might be that they wouldn’t ordinarily be classed as vulnerable but they are asking similar questions to this. However, explaining things simply should mean that most clients will then understand. If the same types of questions are still being repeated then that client could be vulnerable.

What should you do to help?

As mentioned earlier there is a regulatory obligation as well as a moral obligation to ensure the right outcome for your client. In general, you will be able to engage with a vulnerable client regardless of the vulnerability. However, what additional or bespoke support offered will depend on the extent of the client’s condition. For example, learning difficulties can include mild forms of dyslexia or more severe conditions where the client relies on third parties to manage their affairs.

Face to face advice will usually be the most suitable interaction method. That doesn’t mean that vulnerable clients should be automatically excluded from a telephone service, but face to face advice might be more appropriate as the adviser will be able to better gauge a client’s reaction/understanding.

Where vulnerability is evident or suspected, offering to involve a third party of the client’s choice might be a good idea, and notes added to the fact find detailing your assessment of the situation. Where the client declines to include a third party and you decide to proceed, your rationale should be included in your fact find. If a client is aged 70 or over but remains highly independent and in your opinion is clearly not a vulnerable client you will need to make this apparent in your fact find and confirm in the subsequent suitability report why an accompanied meeting was not required.

So how might certain types of vulnerability be dealt with during the pensions journey?

Cognitive issues

For clients in this category, providing information to your client in the normal way may not result in your client having a clear understanding of how contributions or access to pensions work. As with any client, taking the time to explain all points fully and to answer all questions is important. It may help to use terminology which is simpler and avoid jargon. Presenting information in a different way can help – for example, explaining pensions tax relief by using a diagram might be more effective. Then asking simple questions to check their understanding.

It could be that a friend has suggested a course of action which could have a significant impact on their life such as a defined benefit transfer. Your client may be convinced that this is in their best interests but you aren’t comfortable that they fully understand the implications in making such a decision which can’t be reversed.

Follow up meetings could be very useful as it allows the client time to read documentation and consider further questions. It is important to make sure that you are not leading or guiding your clients and be confident that their reactions are their own and they are not just mirroring you by repeating statements which you have already made.

If despite your best efforts your client remains very confused and unable to understand the information you are presenting, you must consider what action is best for your client. Perhaps they want to take out a personal pension but you aren’t convinced that they understand the long term nature of a pension. You might decide to stop the conversation until a suitable way forward can be formulated, which may include a different delivery method or suggesting again that they involve a third party.

In the case of elderly clients you may also need to consider if certain products are suitable, unless there is a very clear need for this type of contract. Given their age, it is less likely that recommendations of medium to long term investment type contracts would be deemed suitable, unless the client’s life expectancy can reasonably be expected to exceed the minimum investment term you would consider appropriate for most of these propositions. From a pensions point of view you might have quite a few clients who don’t need to access pension money to live on and the decision has been made to leave that money unvested. However, important conversations are needed in the run up to their 75th birthday. If lifetime allowance is an issue, do they understand that a tax charge will be deducted from their funds? Do they understand how death benefits work? Conversations that might have been easy to have when the client was 70 might not be so easy five years later.

It is well established that those aged 85 and over represent the fastest growing segment of the UK population. The FCA has done much work on ensuring that the financial services industry addresses the aging population. Their Discussion Paper (DP16/1) issued in February 2016 (together with subsequent update and connected papers) provides a very helpful insight to the interaction of the ‘Aging population and financial services’  providing a collection of ‘think pieces’ by different interested parties which is intended to ‘provoke discussion and debate about how financial services work for older consumers’.

Life changing events

You may have clients who you would never have classed as vulnerable before but they have had a life changing event which changes that. There are various events which could trigger vulnerability.

Ill health

You may have clients who need help in accessing pensions due to ill health which could make them vulnerable. Helping them to understand what they are entitled to access and the impact of taking pensions will be crucial. You could also have clients who have received a diagnosis of terminal ill health. This is devastating news for the client and their family and it may mean that they want to access serious ill health lumps sums or transfer from DB schemes especially if they are unmarried and have adult children. However, there could be taxation issues that need to be explained before decisions can be made and if the client is vulnerable then the considerations for cognitive issues will be similar. It could be that offering to involve family members will be a good idea.


This is an exceptionally upsetting time for a client and their family and the ability to make the best decision could be hampered by being overwhelmed by the loss of a loved one. In some situations it might not be an appropriate time to be dealing with the client at all. However, if their needs are time sensitive then the client will need help. An example of this would be where the member of the pension scheme has died and the spouse or family need help with the death benefit process. Important decisions need to be made. If decisions can wait then it might be a good idea to wait until the client is clearer about what they want to achieve. Perhaps the spouse would like to go into dependant’s drawdown but they aren’t sure about what investments they would like to be in and need time to think about that. You could help set up the drawdown plan but review it a couple of months later. Helping your client understand potential tax implications of death benefits could be important and this may mean that a simpler, jargon free explanation is needed and again, potentially asking if they want to involve a third party.

Help the client to prioritise their needs and offer to deal with any immediate needs first. If you identify additional planning needs that you think would benefit the client, highlight these to the client, however, allow the client to decide when it would be appropriate to deal with these.

Divorce / Separation

This is a very stressful time and clients may be dealing with solicitors in relation to the legal matters but they will also need help in relation to their financial planning. It could be that your client wasn’t previously involved in making financial planning decisions and the vulnerability, brought on by a difficult situation could be magnified by having to make decisions which will impact on the rest of their lives.

As with bereavement it may be that some decisions can be postponed. However, other decisions will need to be taken to safeguard their interests. An example of this is when a pension credit is being received. The actual sharing order can’t be implemented by the ceding provider until they are told where the pension credit has to go. If the ex-spouse doesn’t feel they can make this decision then theoretically they could end up with less money. For example, 50% of member’s fund to go to the ex-spouse. However, the member is in drawdown and taking monthly income payments so a delay could mean they will get 50% will be of a lower fund.

In addition, it may seem that it is easier to divide up other assets with the pension owning spouse retaining control of the pension but this may not be the best solution for the non-pensions owning spouse. They will still have a retirement income need which should be addressed.

Ensure that the key financial impacts have been worked through before providing advice such as what financial support will be provided, who will have custody of the children, how property and assets are to be distributed and the division of debt. It is also important to talk about areas such as what would happen if they died as new wills may need to be written and expression of wish forms updated.

Financial difficulties

More and more people in the UK are demonstrating financial stress due to increased levels of debt. This can manifest itself in clients making ill-informed decisions, for example surrendering a policy with a significant Market Value Reduction (MVR) impact, or accessing their pensions early without considering other options. It could also mean that your clients are at risk from pension scams as they feel they need to access cash which they feel is locked in.

Barriers should not be put in the client’s way, nor should you prevent them from accessing their funds in a registered pension scheme; however advisers have a duty of care to ensure that they fully understand the financial impact. You may also wish to consider referring the client for specialist help if required.


You could have clients who are, or become, partially sighted or blind or are hard of hearing/deaf. This could mean that you need to think about the support they receive from you as well as providers. This could mean providing them with information in another format such as braille, large print, access to type talk (making sure you have the appropriate permissions in place) etc. or asking if they would like to give authority for a third party to be involved.

Similarly, if your client’s first language is not English, you may find it difficult to help your client understand the information you are providing. In these situations, as well as the options mentioned above, you should consider offering to a multilingual third party on their behalf or requesting if the information from providers is available in their main language.


The above example client groups are not exhaustive and there could be other scenarios when a client could become vulnerable and need additional help. Addressing this issue is an important part of financial advice. Many parts of financial advice are complex and pensions are a good example of that. This doesn’t mean that those highlighted as being vulnerable can’t go on the pensions journey but it does mean that more care needs to into how advice is given.

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