The City watchog is amending its guidance on how firms should work out redress for unsuitable defined benefit transfers to take into account government changes to the retail price index.
In a statement, the regulator said that redress calculations will need to be revisited and outstanding claims should not be settled until its updated guidance is issued.
RPI is due to be aligned with the consumer price index with housing costs by February 2030, which will imply changes to the calculations used by the regulator.
Currently, the FCA guidance advises a -1 per cent adjustment to the RPI assumption to calculate the consumer prices index, which after the government's change, will no longer reflect the difference between the two inflation measures accurately.
The difference will be too large and therefore clients may not receive the correct amount of redress.
The FCA said this change will affect savers who transfer out of DB schemes that are uprated annually in line with the CPI.
It will therefore update the CPI adjustment in its guidance to ensure that these individuals are receiving the correct amount of compensation.
This update will be made by mid-March 2021 and without consultation.
The FCA stated: “Consulting on this technical change would delay the correct amount of redress paid to consumers. We will backdate the change to 25 November 2020 and it applies to all calculations carried out from that date.”
The regulator said if a firm believes a client may have been disadvantaged by a calculation then they should revisit this.
Claims dealt with by firms on or after November 25 will need to be looked at again. These could have arisen from consumer complaints, Fos complaints and reviews of past business.
In its guidance the FCA said a client is treated unfairly if a redress calculation does not put them into the position they would have been in if the unsuitable advice had not been given.
Where firms are processing claims they must ensure that the redress calculation reflects the client’s original DB scheme, the FCA said.
Where a client was eligible for CPI-uprated benefits if they had not transferred, and firms are aware that applying the guidance results in an inflation assumption that does not reflect CPI, then a firm must account for this in their redress calculation, the FCA stated.
But if firms are unsure how to account for this - for example they need to wait for the regulator to update its guidance - they must inform the client.
The FCA said firms should not settle redress payments, including on a ‘full and final settlement’ basis, until the guidance has been updated.
After government consultation it was decided that from 2030, RPI will be aligned with CPI including housing costs.
But as CPI runs at a lower rate than RPI, typically by around 1 percentage point a year, many in the industry have warned the move would negatively affect millions of people.