Defined Benefit  

FSCS updates steelworker compensation calculation

FSCS updates steelworker compensation calculation

The Financial Services Compensation Scheme has updated its approach to the way steelworkers' pension compensation is calculated after meeting with advisers and MPs.

To date the FSCS has paid out about £1.1m in compensation to clients of Active Wealth, the first firm to be stripped of its pension transfer permissions by the Financial Conduct Authority (FCA), before entering into liquidation last year.

Many of these clients were members of the British Steel Pension Scheme (BSPS).

But the method used to calculate this compensation has been subject to criticism for being too narrow, focussing on the point when the workers transferred, rather than looking at their "pensions journey".

Following meetings with steelworkers, advisers and their MPs, the FSCS has now decided to compensate for the up-front cost of advice on re-investment options for those members who remain in the Sipp recommended by Active Wealth in recognition of the fact members will want to exit the investments the firm recommended.

In addition, where the FSCS has already decided on claims based on out-of-date values of the retained investments, it has said it will revisit them to ensure an up-to-date transfer value is used in its calculations.

But the FSCS said it would not change its approach on compensating for ongoing adviser charges, despite steelworker requests for it to do so, because its remit is to put people back in the position they would have been had they not been mis-advised rather than compensate for the costs of future investments and any advice charges associated with them.

Mark Neale, chief executive of the FSCS, said: "We have strong sympathy for the plight of the members of the defined benefit pension schemes who were badly let down by Active Wealth and other advisers.

"We want to achieve fair compensation for them and hope these changes to our approach will go some way to helping them get back on track.

"We are also keen to hear from any BSPS member advised by Active Wealth who has yet to make a claim to FSCS – we are a free service to consumers, and stand ready to help."

Last year the FCA said 10 firms had voluntarily dropped their pension transfer permissions amid the fallout of the BSPS debacle but so far Active Wealth is the only one of these to be declared in default by the lifeboat fund.

The FSCS did not comment on whether the updated methodology would apply to other firms if they went into default.