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FCA to review redress for unsuitable pension transfer advice

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The FCA wants to change how redress is calculated for unsuitable pension transfer advice as it believes the current system is flawed.

The regulator says it plans to consult in the autumn on whether to update the current method for calculating redress relating to unsuitable advice to transfer away from defined benefit schemes.

Currently, the redress system used by the industry and the Financial Ombudsman Service dates back to the Pensions Review of 1990s.

It was aimed at putting consumers back in the position they would have been if they had stayed in the DB scheme, but the FCA says it is concerned the way redress is calculated may no longer achieve this.

The FCA admits plans to change the redress system may cause delay for some clients who have cause to complain.

If firms are currently handling a pension transfer advice complaint, they should continue to investigate the claim.

In the event the firm needs to offer redress, the FCA says it expects firms to write to clients to explain it cannot provide a final response. Firms may look to offer provisional redress with a view to providing a further response and potentially further redress once the outcome of the consultation is known.

The FCA says it would not expect firms to settle the complaint on a “full and final” basis.

It adds following the consultation, it expects to reach conclusions by spring next year.



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. The system is indeed long in the tooth. However FOS has regularly updated the underlying parameters (at least once a year) and in particular has now abandoned using figures based on mortality at 1990.

    On the other hand all DB transfers up to 30 June 1994 were included in the Pension Review and with all the furore about them at that time it was a brave adviser who recommended a transfer after then.

  2. I love the way the FCA says it is going to consult on this issue however it does not want andy current redress to be full and final in the meantime. So in effect is IS going to change things t its way of thinking regardless of what is in the consultation. So what bother having this sham of a facade in the first place? Apart from being able to say in the future “We did consult the industry over this”.

  3. A review is timely in light of Pension Freedoms where an increasing number of Final Salary Scheme members are considering a transfer to take advantage of flexibility. The current redress calculation is intended to put customers back in the same situation as if they had not transferred out of the Final Salary scheme. However it does so on the assumption that at retirement the member will purchase an annuity, which most no longer do, and which is expensive. It is ironic that the Transfer Value most schemes will offer would be lower than the total the FCA currently requires Providers to account for.

  4. We know that the majority, if not all, ‘consultations’ are an artifice enabling them to show ‘sue diligence’ and to deflect future accusations of “we told you so”.

  5. There are also IHT implications that need to be considered, clearly clients need more than just guidance we all agree apart from the treasury.

  6. There is a simple and entirely fair way to ensure members are no worse off than they would have been – the Regulator could simply require Trustees to readmit a member who has transferred out. Any CETV would be put back to the scheme and the “member” accrues the benefit they would have if they’d never left. Any shortfall in the amount required to provide sufficient funding to do this would rest with the person recommending the transfer.

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