Adviser trade body Pimfa has called for those who were wrongly advised to transfer out of the British Steel Pension Scheme to be transferred to the Pension Protection Fund so they can once again have a guaranteed income.
In its response to the Financial Conduct Authority’s BSPS redress consultation, Pimfa said past members of the scheme should be placed into the PPF, which would pay out the guaranteed income they had previously given up.
Under Pimfa’s proposals, advice firms would still have to pay redress but this would happen by topping up an individual’s pension provision to a level which would be invested directly into the PPF.
In turn, this would ensure they received a guaranteed income, which would be equal to what they would have received, should they have gone into the PPF in the first place.
Simon Harrington, head of public affairs at Pimfa, said it would be “logical’ and “fair” to put the individual back in the position they would have found themselves in.
“Current proposals to provide the individual with a cash lump sum, simply perpetuate the problem of BSPS members having a cash lump sum which, in the FCA’s view, is unequal to the value of the benefits derived from a DB income.
"We accept that such a proposal would have to take consideration of member withdrawals to date, as well as whether or not the top up would be to the original cash equivalent transfer value or the CETV required to receive the same level of income from the PPF.
"But we do strongly believe that it is in keeping with the broad principle of putting these consumers back in the position they would have found themselves in.”
Pimfa also raised concerns about claims management companies encouraging members to bring a complaint against an adviser, even if the steelworker believes they had a good outcome by transferring out.
An unintended consequence of the redress scheme could also be the potential for CMCs to take advantage of instances where clients are referred to Financial Ombudsman Service, Pimfa said.
While people should be able to appeal judgments, an increased level of claims to be processed by the ombudsman will make processing claims slower, it said.
As a result, the overall cost to firms of the redress scheme is also likely to be significantly higher than the FCA has set out in its cost benefit analysis.
Pimfa raised concerns about how realistic it was of the FCA to expect professional indemnity insurance providers to cover claims to the level the regulator has set out.
The trade body said there had already been instances where providers had withdrawn cover ahead of claims and it was likely renewed insurance cover taken out before the redress scheme is implemented might have specific BSPS carve outs in the event of potential claims.
Harrington said: “We are extremely concerned about the ability of firms to be able to withstand a high number of claims and do not believe it is reasonable to expect firms who are subject to multiple claims to be able to draw on capital reserves to cover them, regardless of whether or not they hold adequate PII. These firms will fail.