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FSCS payouts to steelworkers fall by £30k

FSCS payouts to steelworkers fall by £30k

Steelworkers who lost thousands as a result of the British Steel Pension Scheme scandal have seen their payouts from the Financial Services Compensation Scheme fall by around £30,000 this year as a result of challenging market conditions.

FTAdviser understands one firm representing steelworkers has seen the average FSCS payout fall from £72,000 in the first quarter of 2022 to £40,000 since July 1.

The average is based on 26 claims paid out in the first quarter and 14 which have so far been paid out in the third quarter.

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The FSCS covers up to £85,000 for steelworkers who were advised by firms which failed after April 1, 2019.

As it stands, the methodology for calculating payouts works on quarterly market assumptions. This means from July 1, new quarter assumptions were taken into account by the FSCS.

Two-year gilt yields have been rising in recent months. When gilt yields rise, compensation for defined benefit pension transfers can fall. 

This is because the post-retirement discount rate in the methodology is based on gilt yields. The post-retirement discount rate is used to price an annuity to replicate the benefits the consumer would have received from their defined benefit scheme, usually the date they retire.

Because rising gilt yields reduce the cost of an annuity, the amount of redress consumers need to make up any shortfall between the value of their defined benefits and the value of their defined contribution pension will – other things being equal – be less.

The Financial Conduct Authority’s redress scheme, which is currently being consulted on, is to be based on the same methodology. 

Some law firms representing steelworkers are concerned that the payouts from the FCA’s redress scheme could experience similar dips if the methodology underpinning the calculations is not changed.

This FCA’s redress scheme, which was consulted on in August, proposes to cover steelworkers who are not within the scope of FSCS compensation.

The FCA confirmed to FTAdviser that it will be engaging in discussions with law firms which represent steelworkers next month on how it intends to calculate redress amounts going forward.

One of the proposals is to move from quarterly to monthly market assumptions, which could help reduce potential dips in redress due to market volatility.

The FCA intends to publish a reviewed copy of the methodology sometime this winter, but an exact date has not been set.

For some steelworkers, the six-year claims window is placing pressure on their cover.

FTAdviser understands that if steelworkers received advice to transfer in 2016 or earlier, there is a possibility that they may not be covered by the FCA’s proposed redress scheme.

But if a complaint is made within the six-year time limit, the clock stops regardless of when any redress is calculated or paid to the consumer.   

Meanwhile, the FSCS told FTAdviser it has paid compensation to 886 former BSPS members so far, totalling £54.6mn. 

On top of this there has been £27mn of additional loss on these claims that was above its compensation limits.