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FCA sets out guidance for calculating unsuitable pension transfer redress

The UK Financial Conduct Authority (FCA) has published its final guidance to help advisers calculate the redress owed to customers who complain about an unsuitable transfer from a defined benefit (DB) pension scheme into a personal pension scheme.31 Oct 2017

The detailed guidance (6 page / 173KB PDF) follows a period of consultation and a report earlier this month which said less than half of those seeking advice about such transfers get suitable help.

The FCA said the “basic objective” of redress should be to put the customer “into the position they would have been in if the non-compliant or unsuitable advice had not been given or the breach had not occurred”.

Pensions law expert Stephen Scholefield of Pinsent Masons, the law firm behind, said the guidance was timely given increasing concern about the suitability of pension transfers.

“The challenge, of course, is to ensure that appropriate advice is given in the first place, especially as many of those who are badly advised may never realise that this is the case and so may miss out on the redress that is rightly due to them. Unfortunately, it may not do much to help those who are subject to pension scams, as the adviser may have long since disappeared,” Scholefield said.

The FCA said the redress calculation should reflect the features of the original DB scheme, and advisers should consider how far they should take into account any adjustments to the benefits which the customer would have been eligible for under the DB pension scheme, such as adjustments to benefits after retirement to reflect a state pension offset, or the scheme entering the Pension Protection Fund.

The redress should be paid either into the customer's personal pension by augmentation, or in the form of a lump sum.

The guidance applies to any complaint received after 3 August 2016, or any complaint received before then which was not settled on a full and final basis by that date.

Separately, the UK Department for Work and Pensions (DWP) has begun a consultation (30 page / 227KB PDF) on draft regulations intended to simplify the bulk transfer of defined contribution (DC) pensions without member consent. The changes will not apply to DC schemes which include guarantees. The DWP said these schemes could and should still be accurately assessed by actuaries.

Scholefield said the simplification of the transfer process for DC scheme was welcome.

“It will help small schemes who may otherwise struggle to meet the increasing governance burdens find a more appropriate home for their members, without having to jump through unnecessary and costly hoops,” Scholefield said. “Reducing the number of small schemes is also likely to increase the coverage of the pensions dashboard, so here at least pensions policy seems joined up.”

The government announced in 2016 that a new pensions dashboard would be created to allow savers to see their various retirement income streams in one place. The idea behind the initiative is to help people to make more informed decisions about their retirement savings.