How should trustees deal with a rise in vulnerable members?
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The number of 'vulnerable customers' is widely expected to increase, as many face financial and health pressures. What can trustees do to ensure vulnerable scheme members also receive the help they need?
The FCA’s Financial Lives Survey found in 2017 that up to 50% of people in the UK show at least one characteristic of vulnerability. With Covid-19, many expect this proportion to increase as the pandemic can lead to job loss, illness, death of a loved one or mental health issues – potentially reducing people’s ability to make good judgments.
In its coronavirus guidance, the FCA reminds firms to be aware that the impact of Covid-19 is not only “likely to exacerbate the personal circumstances that can cause vulnerability” but could also “cause consumers who would not normally think of themselves as vulnerable to suddenly face personal circumstances that can cause vulnerability, such as a sudden and significant loss of income”.
What does 'vulnerable' mean?
The FCA defines a vulnerable consumer as someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.
It notes that much consumer protection legislation is underpinned by the notion of the ‘average’ or ‘typical’ consumer and how they might behave, but that vulnerable consumers "may be significantly less able to represent their own interests, and more likely to suffer harm than the average consumer”.
They can be temporarily or permanently vulnerable because of physical and mental health, life events, their financial capability and their financial resilience. Among UK adults, 17% have low financial capability, and more than a fifth have no savings.
With coronavirus, there is an additional significant impact on people’s finances. Around 6m people in the UK (18% of the total workforce) have already seen their hours cut, been laid off or made redundant, and 38% have lost household income because of the crisis, with nearly 8% losing 80% of their household income or more, according to Citizens Advice.
Only a third of UK households (35%) are financially secure in this crisis, while 21% have accessed some form of savings in the past few weeks, found YouGov on behalf of the Standard Life Foundation. A similar percentage (22%) of people have no savings. Around 1.8m households made claims for Universal Credit between 16 March and 28 April.
The FCA consulted on draft guidance for firms on the fair treatment of vulnerable customers last summer, but a second consultation planned for this spring has been delayed because of the pandemic.
The draft guidance focuses on understanding vulnerability, the skills and capability of staff, taking practical action through product and service design, communications and customer service, and monitoring and evaluation. While there are currently no final guidelines, the FCA has a practitioners’ pack with tips and resources for those dealing with vulnerable customers.
The trust-based space has no equivalent guidelines or concept of vulnerability, and though trustees must act in beneficiaries’ interests, there is a risk that they also assume a ‘typical’ member when making decisions. The Pensions Regulator’s recent guidance on communicating with members during the pandemic, including intensifying scam warnings, can be seen as a recognition of members’ greater vulnerability under Covid-19, however.
Vulnerable customers difficult to identify
Though wide-spread, vulnerability is difficult to identify for providers, but perhaps even more so for trustees, who have little direct interaction with members.
The administrator therefore has to fulfil that role, notes Hymans Robertson partner Rona Train.
“One of the administrators’ key jobs is to ensure that people are aware of all the options open to these vulnerable people, without straying into advice,” she says.
In the pensions space, a common vulnerability would be old age. When it comes to age, it is not just the possible onset of dementia that could make people vulnerable.
“Many older people be could vulnerable given they may be uncomfortable with modern technology. Using a website or speaking to an automated messaging service could cause them significant anxiety, meaning they don’t carry out the task they had intended to do or end up making a poor decision,” says Train. “This could potentially leave them financially disadvantaged and could also lead to a loss of trust in the administrator.”
While most providers have specialist teams trained to deal with vulnerable customers, these teams are generally relatively small, and the current remote working environment could mean that those who form part of them lack the support that the sometimes stressful role requires, she adds.
Even where staff are trained, identifying vulnerability remains “very difficult”, says Jonathan Warren, a business consultant at Altus.
“Many vulnerabilities can be hidden, and active disclosure from customers is probably low [due to] a variety of factors,” he notes, including fear of the consequences of disclosing them. “The industry needs to do a PR piece to say, ‘If you are struggling, we’re here to help’.”
Dealing with vulnerable people well “requires a culture from bottom to top” that looks at how the proposition is structured, staff being trained and more, he argues. For trustees, it means a joined-up approach between different parties – provider, administrator and the scheme.
Increase in vulnerable members heightens importance of comms
Communicating the support and options for help available is key in dealing with vulnerable people, finds Heidi Allan, senior financial wellbeing consultant at LCP.
“The same can be applied for any groups who are not currently vulnerable but could potentially become so in the future. Clear, concise communication provided in an easy to understand way, signposting people to the support they need,” is crucial, she adds.
But in an environment where a majority of scheme members could start to fall into the 'vulnerable' category, schemes will come across challenges, she admits, as “none of us know how long this [pandemic] will continue and what the end outcome will be for industries as well as investments”.
