PensionsJan 24 2019

FSCS denies Steelworkers special discount rate

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FSCS denies Steelworkers special discount rate

British Steel Pension Scheme members will not receive a reduced discount rate for compensation calculations, the Financial Services Compensation Scheme has decided.

The FSCS had been reconsidering its method of calculation following proposed changes at a parliamentary meeting in November, which if implemented could have seen steelworkers receive the maximum compensation awarded by the scheme of £50,000.

Philippa Hann, solicitor at Clarke Willmott, and Alastair Rush, principal at Rutland-based Echelon Wealthcare, who were representing the steelworkers advised by Active Wealth, made a case at the meeting for changes to be made to the compensation.

The FSCS was told the discount rate currently used to calculate redress – of 3.7 per cent - was too high since it assumed 50 per cent equity content when the BSPS was risk free.

The body was also asked to use today's market value of the investments, due to recent market downturns, and heard the compensation should also consider the cost of advice since it was now an ongoing commitment for those that were poorly advised to transfer out. 

The FSCS had announced earlier this month it had agreed to revisit claims based on out-of-date values and to take into account previous annual adviser charges, ultimately satisfying two of the three proposed changes.

Ms Hann said: "Whilst this is disappointing, it is not unexpected.  

"They felt they must treat all applicants equally whether they have transferred from the BSPS or another final salary scheme." 

Ms Hann said the FSCS’s decision to use valuations no more than one month old when addressing the claims and to include previous ongoing adviser costs will see the level of compensation increase for scheme members.

She added: "I anticipate and hope that decisions will be made relatively swiftly now,  in weeks not months."

Mr Rush said: "We have got two out of the three aspects that we lobbied for.  

"We always knew that the third was a stretch, so although we're a little disappointed, we're also pragmatic enough not to be too surprised at the FSCS decision to keep the discount rate where it is."

Mr Rush said the revaluation of funds and taking into account previous annual adviser charges clarified and helped matters for the scheme’s members.  

He said: "I know the men and their families are very grateful to Stephen Kinnock and Nick Smith for all their hard work, and I'm meeting Stephen tomorrow to help further where I might be able to.  

"I'm grateful to FSCS and to FCA for taking the time to meet with us in December at Westminster, and I hope this announcement heralds the men taking one step further to getting their lives back on track."

Mark Neale, chief executive at the FSCS, said the issues to consider were if the FCSC was bound to adhere to previous FCA guidance, and, if not, should it depart from the methodology for BSPS members in particular.

He said: "There is the question of how far, in dealing with claims from BSPS members, FSCS should be bound to apply finalised guidance published by the FCA in October 2017, which sets out how firms should calculate redress for unsuitable defined benefit pension transfers.

"We have, in particular, been asked to depart from this methodology in determining the discount rate used to convert BSPS’ members prospective pensions into a capital sum to compare with the present transfer value of their retirement savings.

"On the first question, our view is that, although FSCS has applied the FCA guidance in determining well over 1000 defined benefit transfer claims since it was adopted, we do have discretion under the rules to take a different approach if we consider that a departure is essential in order to provide a claimant with fair compensation."

Mr Neale said the FSCS had therefore carefully considered whether or not the circumstances of these particular claims meant a departure from the methodology was essential in order to provide fair compensation.

He said: "A key consideration here is that FSCS must take a consistent approach when calculating compensation for similar cases.  

"For claims made by members of the miners, NHS, armed forces or police pension schemes, FSCS has applied the methodology in the FCA guidance.

"It would be unfair to those claimants if FSCS now took a different approach to the claims by BSPS members, unless there was something to differentiate these claims.

"FSCS has carefully considered the issues raised by BSPS members legal advisers, Clarke Willmott, but does not consider that we have been presented with a robust actuarial case for differentiating the claims made by BSPS members from the other defined benefit transfer claims received by FSCS. 

"If additional information becomes available, for example an actuarial case which distinguishes these cases from those of other claimants seeking compensation for negligent advice regarding a defined benefit transfer, we shall certainly be willing to return to this issue."

rachel.addison@ft.com