The FCA has announced a periodic review of the redress guidance for unsuitable defined benefit (DB) pension transfers.
Its guidance sets out how firms should calculate redress for unsuitable transfers and is reviewed at least every four years.
The guidance is used by firms to put consumers back in the position they would have been if they had remained in their DB scheme.
While the periodic review is ongoing, The FCA says firms should continue to assess complaints about unsuitable advice fairly and promptly, and calculate any redress due in line with the current approach.
As part of the process of preparing for the review, the FCA has also identified some areas where firms may also benefit from clarification on how it currently expects redress to be calculated when following the guidance.
It says redress should enable consumers to cover the cost of ongoing product charges and regular adviser charges up to normal retirement age, both on the transferred pension and the amount of redress.
For prospective loss cases:
- The redress amount should allow for personal pension charges, where known, up to a maximum of 0.75% per year and allow for regular adviser charges on top of this.
- The pre-retirement discount rate should be netted down to allow for ongoing product charges and regular adviser charges in percentage terms up to normal retirement age.
- Regular adviser charges should be assumed to continue in full, at the current level.
- Where firms use any other method to take account of future product and ongoing adviser charges, eg for non-percentage-based charges, they should satisfy themselves that the result achieves the same intent.
For actual loss cases, the personal pension value used for the redress calculation should take account of any adviser charges that were incurred when the pension moved into decumulation at retirement.
In its statement, the FCA says firms should allow for ongoing adviser charges in redress calculations. In line with Principle 6 and the requirement to handle complaints fairly under DISP, firms should not withdraw or change the cost of ongoing advice services without good reason. For example, if a consumer is paying for ongoing advice services prior to a complaint or past business review, it may not be appropriate for the firm to withdraw services or change their cost unless requested by the consumer, and with a clear disclosure of the effect that would have on the consumer’s redress calculation.
Where another firm is giving ongoing advice, firms should also allow for ongoing adviser charges. This is to compensate the consumer for charges that they would not have incurred if they had not been advised to leave their DB scheme.
Additionally, where redress is paid in the form of a lump sum, it should be adjusted to take account of the consumer’s individual tax position and wider circumstances.