In the past few months, pensions redress has found its 15 minutes of fame, with the Financial Conduct Authority consulting on a consumer redress scheme for individuals who transferred out of the British Steel Pension Scheme, and issuing asset retention requirements for companies who provided the transfer advice.
Below, we summarise the key features of the FCA’s proposals and how it may impact on the wider picture for pensions redress.
A brief summary of the British Steel consumer redress scheme
Most people in the pensions industry are familiar with the basics of the BSPS saga.
In 2016, Tata Steel announced it was considering options to restructure the business, and the trustees of the BSPS wrote to members setting out the implications on benefits if the scheme entered the Pension Protection Fund.
Understandably, many individuals were concerned about the future of their pension, and almost 8,000 people chose to transfer out over the next couple of years, many of whom (but not all) were advised by independent financial advisers who were trying to act in their clients’ best interests.
Arguably. the situation would have been improved if the BSPS trustees had anticipated a rush on transfers out and pointed their members towards a vetted IFA.
Sadly they did not, and the FCA now considers that many people have suffered financial loss as a result of transferring, with the spectre of compensation payments looming over an estimated 343 companies.
The FCA has come under scrutiny for its handling of the situation and is now proposing a consumer redress scheme, under which the advice given to transferring individuals between May 2016 and March 2018 will be reviewed, irrespective of whether the individuals were unhappy with their outcomes.
Compensation will then be paid as required.
The FCA issued consultation document CP22/6 on March 31 with the consultation period closing on 30 June.
It anticipates that around 1,400 individuals will receive redress and around 40 advising companies will enter insolvency if the proposals go ahead in their current form.
It is dramatic stuff for pensions redress. And it will have implications that are wider-reaching than BSPS transfers.
This is because a review of the FCA’s existing redress guidance, FG17/9, will be carried out this summer, with any changes to the guidance affecting all companies that have, or plan to purchase, a book of defined benefit transfer advice.
The FCA intends to align the compensation that will be paid under the consumer redress scheme with the revised redress guidance, so the outcome of the review is inextricably linked to the BSPS situation.
So, what sort of things have cropped up in the initial feedback to CP22/6?
Three key points spring to mind:
How to pay redress
The first is the way in which redress is actually paid.
The current redress guidance is worded so that the default mechanism for paying redress is via a top-up of the member’s personal pension, the intention being that they are then put into a position that most closely matches the position they would be in if they had not transferred.
Where this is not possible – which is common due to annual and lifetime allowance issues – redress can be paid as cash.