The FSA is suspending pension review phase two transfer cases to amend its guidance which could lumber outraged IFAs with massively increased redress bills.
The regulator says the forecasted long term drop in interest rates has forced it to change the way loss is calculated in phase 2 transfer cases and could result in a 5 per cent to 8 per cent hike in the redress bill paid by IFAs and product providers.
It is advising reviewing firms to stop work on loss calculations for transfer cases until new guidelines are published.
Research by big five accountancy firm PricewaterhouseCoopers, reveals as many as 35 per cent of all phase 2 transfer cases will not be sufficiently compensated if the existing guidance on loss calculations is used.
It believes the introduction of new guidance, which takes into account the long term predictions for interest rates, will result in an increase loss assessment calculations and offer investors a fairer amount of compensation.
When the changes are implemented the overall bill for the phase 2 of the pensions misselling review could rise by more than £1bn to just short of £8bn with IFAs accounting for up to £400m of that.
FSA press officer Jackie Blyth says: “The PIA guidance as it stands does not account for the change in long term interest rates and also changes for Serp benefits for younger investors.
“Therefore potentially some transfer cases may not receive the appropriate level of redress.”
But Informed Choice managing director Nick Bamford says: “What on earth are they trying to do, double guessing something that is 20 years ahead using current economic factors? It's totally ludicrous.”