FCA accused of underestimating impact of Fos hike

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FCA accused of underestimating impact of Fos hike

Pensions provider Aegon criticised the regulator's suggestion that activity in the DB transfer market had "peaked" and warned the hike in compensation could mean "bad news for the many thousands" of consumers seeking advice on whether it is in their interests to transfer out of a DB pension. 

Steven Cameron, pensions director at Aegon, said: "The FCA highlights that the number of people building up defined benefit pensions is diminishing. But there are still huge numbers who have previous entitlements which they might be considering transferring, for example to access pension freedoms.

"While there has been a recent drop in transfer activity, this is at least partly down to the lack of supply of advice, and shouldn't be interpreted as a decline in demand.

"Well-intentioned action to compensate customers who've lost out as a result of poor advice could unfortunately create real problems for the vast majority of highly professional advisers wanting to meet their clients' needs for advice on DB transfers.

"It is vital that the FCA monitors closely the impacts of their decision and how PI insurers react. Otherwise, there could be widespread consumer detriment with thousands of individuals unable to get advice on what’s best for their retirement provision."

Alistair Cunningham, financial planning director at Wingate Financial Planning, said he saw a positive in the changes as previously there have been cases where serious harm had been caused, most commonly around DB transfer advice, but the Fos limit allowed "woeful" compensation.  

He said: "However I do not hold that premiums should rise: exclusions and maximum sums per claim, and in aggregate reduce the risk to insurers, and whilst the tide is tending to tighten cover, which is right and proper, there is no guarantee that someone made the higher level of Fos award can enforce it where there is serious failings by a single firm.

"My take on this is that the regulator and Fos do not want smaller firms giving advice in these high risk areas, and whilst I am not convinced they will achieve this aim, it does seem like a sledgehammer to crack a nut: more effort should be spent on weeding out the rotten apples."