In Focus: Retirement Income  

Up to £12bn needed to fill DB redress hole

Up to £12bn needed to fill DB redress hole

Victims of defined benefit transfer misadvice face a huge redress when it comes to compensation calculations – a problem that would cost up to £12bn to put right, specialists have claimed.

According to campaigners, not only do victims of wrongful DB pension transfer advice face wildly differing levels of compensation, depending on when the redress calculations are carried out, but they also have to bear all the investment risk themselves.

This FTAdviser In Focus podcast talks to two campaigners who have highlighted the problems with the methodology and the way in which the payouts are made in cash lump sums.

They said the way the current calculations are used by the Financial Services Compensation Scheme could leave some former DB pension members with redress worth up to 40 per cent less than peers in a similar situation, purely as a result of when the calculations are carried out.

On the podcast, the specialists claimed the current methodology could affect thousands of workers and create a potential pension shortfall of up to £12bn to put right – money that just is not available.

Steve Groves, founder of Grifo Consulting and former chief executive of Partnership, told FTAdviser In Focus what actuarial calculations could be made to improve the compensation methodology and pinpointed the current problems with the methodology.

Also on the podcast is Al Rush, founder of Echelon Wealthcare, who said had it not been for the fact that his steelworker clients talk to each other about the compensation they have received, the problem with the redress methodology might have gone unnoticed.

He warned the problem affects far more people than just the former British Steel Pension Scheme members.

They also outline what can be done to ensure the optimum retirement income for these victims. 

FTAdviser In Focus has previously written about the glaring issues with calculating the redress available to victims whose claims have fallen onto the FSCS. 

Earlier this year, FTAdviser reported that some transfer victims could end up with 30 per cent to 40 per cent less compensation than their peers in very similar circumstances, because of the date on which their redress calculation is made.

In May, campaigners wrote to Nikhil Rathi, chief executive of the FCA, outlining the issues and calling for changes.

simoney.kyriakou@ft.com