The City watchdog is preparing to review its redress guidance for unsuitable pension transfer advice by the end of this year and has clarified what it expects of firms in the meantime.
In a statement, published this morning (September 1), the Financial Conduct Authority confirmed it will start its periodic review of the guidance, which dictates how firms must calculate any redress due, by the end of 2021.
This guidance was first published in October 2017 and at the time the FCA committed to review the guidance at least every four years.
In its statement, the FCA set out its expectations of firms while the review is ongoing, saying they should continue to assess complaints about unsuitable advice “fairly, consistently and promptly” and calculate any redress in line with the current approach.
However, it warned firms to adhere to its latest set of clarifications on adviser and product charges when calculating redress and to contact clients if they think additional redress could be due.
It stated: "As part of the process of preparing for the review, we have identified some areas where firms may also benefit from clarification on how we currently expect redress to be calculated when following the guidance.
"Firms should ensure that they, or any actuarial specialist they have outsourced a redress calculation to, take the following actions when determining the amount of redress to offer. Firms not meeting these expectations should make appropriate changes to their processes before issuing any new redress offers.
"Where firms have already carried out calculations that do not meet the expectations in our guidance, it may be appropriate to review those calculations and contact consumers where they determine that additional redress may be due."
Adviser and product charges
In particular, the FCA said the redress should allow for adviser and product charges: “Redress should enable consumers to cover the cost of ongoing product charges and regular adviser charges up to normal retirement age, both on the transferred pension and the amount of redress.”
The FCA set out that compensation should allow for personal pension charges up to a maximum of 0.75 per cent per year and for regular adviser charges on top of this.
The pre-retirement discount rate should be netted down to allow for ongoing product charges and regular adviser charges in percentage terms up to normal retirement age, and regular adviser charges should be assumed to continue in full, at the current level.
It also said where another firm was giving ongoing advice, these charges should be taken into account.
The FCA said this was to compensate the consumer for charges they would not have incurred if they had not been advised to leave their DB scheme.
The regulator also provided clarification on taxes, saying where redress was paid in the form of a lump sum, it should be adjusted to take account of the consumer’s individual tax position and wider circumstances.