The Financial Conduct Authority (FCA) will consult in the autumn on updating the methodology used to calculate levels of redress due in cases of unsuitable advice on transfers from defined benefit (DB) occupational schemes to personal pensions.
The redress methodology was originally developed for the Pensions Review of the 1990s.
According to the FCA, it is intended to put consumers back in the position they would have been in had they stayed in the DB scheme. However, the regulator expressed concerns this methodology may no longer achieve the objective it was set out to.
The consultation will be designed to decide on whether to update the rules, with any changes to the redress methodology applying to future compensation payments.
The FCA made it clear firms should continue to comply with its obligations under the current rules before the outcome of the consultation is known.
These are to investigate the complaint competently, diligently and impartially and to assess the complaint fairly, consistently and promptly.
However, if following investigation and assessment the firm needs to offer redress under the current methodology, the FCA would not expect it to be fair for the company to attempt to settle the complaint on a “full and final” basis until the outcome of the consultation is known.
In this situation the regulator would expect the firm to write to the customer explaining why it is not in a position to provide a final response. It added the firm should also consider what options may be available for dealing with the complaint fairly on an interim basis.
The FCA expects to reach conclusions by spring 2017 in order to minimise delays in redress for consumers.
Matthew Harris, director at Harris Independent Financial Advice, said: “We saw a case where the adviser recommend they transfer £450,000 and the adviser facilitated the transfer. The client complained and it was determined redress should be in excess of £300,000.
“The amounts of redress are enormous in comparison with other advisory business. It’s restricting the advice available to clients and making the cost of advice very high.”
ruth.gillbe@ft.com
