Former pensions minister Steve Webb has branded the FCA’s decision to hike the Financial Ombudsman Service compensation limit as “shocking” and “counter-productive”.
In a policy statement published today the watchdog confirmed it will increase the compensation limit from the current £150,000 to £350,000 from 1 April.
The document’s passages on professional indemnity insurance shed light on how the FCA views the compensation hike will affect the availability of financial advice for defined benefit transfers.
Webb points out the watchdog has been forced to admit that rather than 2,000 people potentially benefiting from the higher cap each year, only around 500 people are set to do so.
The FCA also admits that in a worst case scenario, hikes in professional indemnity insurance costs for advisers could lead to around 1,000 advice firms pulling out of the market for pension transfer advice.
But the regulator says 1,500 advice firms would be left in the market to give transfer advice, and that would be sufficient to meet demand.
Similarly the FCA also says professional indemnity insurers’ view is premiums will rise due to changes in the insurance market and this has nothing to do with increasing the compensation limit.
In response to the policy statement Royal London director of policy Steve Webb says: “The FCA has been forced to admit that it got its numbers wrong and that just 500 people a year might benefit from this change.
“But the risk is that the insurance which advisers are obliged to buy will more than double in price and could drive up to a thousand firms out of the pension transfer advice market altogether.
“There is already clear evidence that PI insurers have been hiking premiums in anticipation of this policy change. Yet the FCA is pressing on regardless. This is a shocking decision.
“If far more members of the public are unable to access advice then this will be counter-productive and consumers will lose out as a result.”