UK regulator finalises pension transfer redress rules
The calculation of redress to customers who had been given unsuitable advice on transferring out of defined benefit (DB) pensions has been released by the Financial Conduct Authority (FCA) today, the regulator has said.
The underlying principle behind the six-page guidance document, a spokesperson said, was to put the customer in the position they would have been had they not followed the unsuitable advice.
The document, which can be viewed here, follows a consultation in March of this year, when the FCA estimated that firms received up to 8,000 complaints per year, with redress per complaint ranging between £20,000 and £60,000.
The updated guidance revises the rate of inflation used in calculations to reflect updated changes to Bank of England data.
The regulator has also removed the lifestyling element in the pre-retirement discount rate.
Value of redress could rise by up to 20%
The regulator estimates that that the value of pension benefits will accordingly increase by as much as 20%, representing a good outcome for complainants.
The updated guidance will affect any complaints made after 3 August 2016 about advice to transfer the cash value of DB benefits into a money-purchase scheme. It will also apply to any complaints made before that date but not settled by then.
The FCA said that the guidance contains assumptions which respondents should use to
calculate appropriate redress in circumstances where “the customer received advice from the firm which was negligent or contravened relevant requirements”.
It also applied where, “if the advice had not been negligent or had complied with the relevant requirements, the customer would not have transferred all or part of the cash value of accrued benefits from the DB pension scheme into the personal pension scheme”.
It said that, “where possible, the redress calculation should reflect the features of the customer’s original DB pension scheme”, including, for example, different tranches of pension increase rates, and deferred revaluation rates.
Complainants ‘must not be left worse off’ following redress
It added: “If it is not possible to pay the redress amount into the customer’s personal pension by augmentation, the redress should be paid in the form of a lump sum to the customer.
“This should be adjusted to take account of the customer’s individual tax position. Firms should be mindful of where the redress methodology already factors in tax, such as when considering pension commencement lump sums.
“A customer should not be left in a worse position at the point of being redressed as a result of the redress either being used to augment their personal pension or being paid as a lump sum. In calculating the redress amount, respondents should also take into account the customer’s wider circumstances so that they are not disadvantaged by receiving the redress payment.”