The FSA says its decision to scrap plans to force advisers to compare all defined-benefit pension transfers using an RPI-linked annuity rate will lower the estimated benefit of the reforms to members by £5bn.
The regulator today confirmed changes to the way pension transfers are calculated in a bid to make it more difficult for advisers to recommend an investor quits their defined-benefit scheme.
However, it has backed down over proposals to force IFAs to use an RPI-linked annuity rate to calculate all transfers, including where the DB scheme has CPI or LPI-linked benefits.
The regulator has instead decided to use the same inflation measure for annuity comparisons as exists in the scheme the member is transferring out of. For example, CPI-linked benefits will be valued using a CPI-linked annuity rate.
The FSA says: “The benefit attributable to clarifying the annuity rate to be used for LPI pension increases has been reduced as a result of the change in our policy.
“We previously estimated that the benefit would be up to £15bn if we had proceeded with our proposal to value all LPI pension increases using RPI-linked annuity rates.
“However, the rules we are now making will value LPI pension increases in a way which is more consistent with the nature of the increase, given the cap and collar which are applied, and in some cases will place a lower value on them.
“While the benefit will depend on the mix of different rates of LPI, we estimate that it could be worth up to £10bn.”
The FSA says the total benefit to members as a result of the changes, including changes to mortality assumptions, could be £15bn.