Defined Benefit  

FCA to crack down on firms miscalculating DB advice redress

FCA to crack down on firms miscalculating DB advice redress

The Financial Conduct Authority has said it will take action against firms who are not properly calculating redress for individuals who were wrongly advised to transfer out of a defined benefit scheme.

The City watchdog said it has received information about a small number of firms not including all fees and charges in their redress.

In a statement, published today (November 9), it said: "We are looking into these matters and where we identify firms not calculating redress correctly, we will take action using the full range of our powers which may include appointing an independent professional to check calculations and help consumers get the right redress."

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Under current guidance, personal pension charges should be deducted and any adviser fees that have been incurred for actual loss cases should be deducted from the proceeds of the arrangement. 

The FCA said the information it has received suggests the firms in question are not considering ongoing fund costs and/or are not fully allowing for ongoing adviser charges in the redress calculations.

It said some of the firms may be unfairly terminating consumer contracts after consumers make a complaint.

“While we have only seen a small number of firms calculating redress incorrectly, we remind all firms undertaking calculations of the importance of allowing for fees and charges correctly," the FCA said.

“This is a complex area and firms need to take special care, given the potential for consumers not to receive the compensation they deserve.”

As a result of the miscalculations, the FCA has published further detail to clarify how firms should calculate redress particularly in relation to allowing for ongoing product and adviser charges.

It said: “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.” 

For prospective loss cases and ongoing product charges it said:

  • Firms should treat any expected future charges which are not adviser charges as product charges. 
  • Firms should allow for all product charges in the redress calculation. This includes, but is not limited to, platform charges, asset-based charges such as ongoing fund charges and product wrapper charges including any regular administration fees or custody charges up to the cap of 0.75 per cent.  
  • Where consumers are invested in portfolios which are likely to involve frequent asset trading incurring transaction charges as well as fund management charges, firms should also include an allowance for reasonable transaction costs.  

For prospective loss cases and ongoing adviser charges it said: 

  • Firms should allow for ongoing adviser charges in redress calculations, including where a consumer is now receiving ongoing advice from another firm. 
  • Regular adviser charges should be assumed to continue in full, at the current level.

For actual loss chases, the FCA said the personal pension value used for the redress calculation should take account of any adviser charges that were incurred when the pension moved into decumulation at retirement.

The regulator noted that this updated information is particularly relevant to any firm calculating redress for former British Steel Pension Scheme members, ahead of a decision by the FCA board on whether to implement a consumer redress scheme.

Last month, the FCA emphasised that BSPS members who were clients of now failed firms would not be included in the proposed redress scheme. 

In a letter to the FCA dated August 1, Work and Pensions committee chair Stephen Timms asked the regulator about BSPS members who were proactive in taking action and received capped compensation from the Financial Services Compensation Scheme.

Timms said those who received this compensation may not feel that “the harm they suffered has been put right.” 

But in response to his letter, the FCA said under the existing proposal, customers of firms that have failed - who may or may not have already submitted a claim to FSCS - will not be included in the scheme.