The FCA’s latest guidance on calculating unsuitable DB transfer advice redress has been welcomed by the market for being more fair and rigorous.
The FCA last week published guidance on how pension transfer complaints should be handled.
The regulator started a consultation in March to update how redress is calculated for unsuitable pension transfer advice. The guidance and consultation follow a review by PwC of the existing method of working out redress.
The changes made to the methodology include revising the inflation rate assumption to reflect the Bank of England’s 40-year inflation forward curve gilt yields and removing the pre-retirement lifestyling rate from the calculation.
Other changes include taking into account adviser charges as well as fund charges, and pension charges up to a maximum of 0.75 per cent.
When the “actual age” of a spouse is known that should also now be taken into account, as well as the tax implications of any redress.
Yellowtail Financial Planning chief executive Dennis Hall says the guidance is a fairer, more rigorous approach to calculating redress.
He says: “It means consumers are likely to be returned to the same financial position as they would have been before the transfer – though it will never exactly replicate the position of not transferring in the first place. And it also intends to take into account changes to long-term inflation rates and life expectancy.”
Wingate Financial Planning director Alistair Cunningham predicts most firms – unless they are very large – will outsource calculating redress to a third party, such as a professional indemnity insurer.
He says: “Most firms will not have the ability or expertise to do it in-house – we certainly wouldn’t – and if you get things wrong it will become very expensive.”
The guidance applies to any complaint received after 3 August 2016.