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FSA guidance on treating windfalls

The FSA is issuing guidance on how windfalls should be treated in the pension review and when handling mortgage endowment complaints.

The guidance follows a High Court ruling earlier this year in the case of Needler Financial Services and Taber, which said windfalls from life office demutualisations should not be taken into account when assessing compensation.

This applies to all windfalls, whether received as shares, cash or additional sums added to policy values.

Firms were allowed to suspend completion of cases which involved a windfall while the court case was proceeding. Firms must now complete assessments disregarding any windfalls and contact clients with the outcome.

Where a case involves a windfall added to the policy value, firms should continue with assessments until the point where the windfall becomes a relevant consideration. The case must then be suspended until further guidance from the FSA is issued.

The FSA is planning to publish a consultation paper providing draft guidance on how windfalls should be treated in cases of mortgage endowment compensation.

It will propose firms should take the same approach as with pension review cases and not take windfalls into account.

The approach firms must take has been published in PIA regulatory update 94. Guidance on windfalls in handling mortgage endowment complaints is expected to come into force around April 2002.

FSA director of the pensions review Philip Robinson says: “The High Court ruling confirmed the regulator&#39s guidance requiring firms to disregard windfalls received in the form of cash and shares when calculating compensation in the pension and FSAVC reviews. Separating the value of policy additions is complicated and has practical implications for firms. We intend to consult on this matter.”

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