In an important FCA update, the Regulator has published a consultation proposing changes to how redress is calculated for unsuitable defined benefit transfers advice. Redress aims to put consumers back in the position they would have been in had they remained in their DB scheme.
The FCA’s recent review has led to a strengthening in its view that redress should be paid into the consumer’s personal pension where possible to ensure it is used to make up pension shortfalls. The consultation asks for feedback on ways in which that objective can be met, including reinstatement into the original DB pension scheme, requiring firms to buy an annuity for the consumer, and providing a guarantee at retirement.
The regulator said that it wants firms to “pay as much redress as possible into the consumer’s DC pension” to allow consumers to invest their redress payments and save for retirement. It also added that this method of augmenting the consumer’s DC pension should be opted for over a cash lump-sum payment.
Implementing the changes and timescales
The consultation will close on 20 September 2022 with the FCA aiming to publish a Policy Statement in late 2022. Any updates will apply to all cases that have not been settled when the changes come into effect.
In the meantime, the FCA says it expects firms to “continue to calculate and offer redress in line with existing requirements”. Firms will need to explain to their customers how they have arrived at a figure, and how this puts them back in the position they would have been in, if they had not received unsuitable advice. Firms will also need to explain that customers have the option of waiting for the outcome of this consultation to settle their case.
Impact on British Steel Pension Scheme members
The latest consultation also sets out proposals for calculating redress for the FCA’s proposed consumer redress scheme for former British Steel Pension Scheme (BSPS) members. Calculations under the scheme will generally follow the same methodology as all DB transfer cases, but the FCA says it has “adapted certain elements to reflect the particular circumstances of the BSPS scheme”.
This should see advice firms pay over £70 million of compensation to British Steel workers in addition to over £70 million which has already been paid out.
In addition, the regulator is setting out proposals for a redress calculator if it decides to set up a scheme. This will help make calculations more consistent, ensuring former BSPS members receive fair and quick redress, and reduce the overall cost of calculations.
Origen’s view
With increased regulatory interventions covering DB transfer advice, the latest consultation will provide the industry with guidance in the provision of redress. Albeit we are slightly surprised that the compensation proposals do not provide the member with secured guaranteed benefits for life placing them back in the position they would have been in before receiving advice to transfer.
What does this mean?
It is important for both the firm and your client to have clarity on the total cost of redress to replace the benefits being lost, The current proposals leave members open to future unknown investment and inflation risk, particularly over short to medium term. it is therefore difficult to see how a risk based solution will be suitable and this could leave the firm open to future complaints over client detriment.
If your firm continues to provide DB transfer advice and you are concerned about the risk of providing this service, or you still have DB transfer permissions but are no longer using them – perhaps because you are considering or have already outsourced DB advice to another advisory firm – we can provide a defined benefit transfer service for your clients where we will hand the client back to you on completion of the transfer advice.
Origen is one of the UK’s leading DB advice firms. We take full regulatory responsibility for the DB advice that we deliver; our service quality and governance meets all regulatory requirements, is subject to regular external audit, and allows advice firms to confidently continue to service their clients’ ongoing advice needs and provide a holistic service. Origen is also owned by Aegon UK plc.
CA8479 Exp 08/23
[ Date Posted: 30/08/2022 13:40:40 ]
