The method for calculating pension transfer redress following unsuitable advice looks set to be overhauled by the Financial Conduct Authority (FCA) later this year.
The regulator today said it intends to consult on changes to current methodology in the autumn.
Pension transfer advice is needed when a client wishes to leave a defined benefit (DB) scheme which – comes with guaranteed retirement income – to transfer into a personal pension scheme. If the advice is unsuitable clients are often left in a worse financial position due to the transfer.
The FCA said the current redress methodology used in the industry and the Financial Ombudsman Service was originally developed for the Pensions Review of the 1990s. It explained it is intended to put consumers back in the position they would have been in had they stayed in the DB scheme.
The regulator said: “The FCA is concerned that the redress methodology may no longer achieve this objective so has decided to consult on whether to update it. Any changes to the redress methodology will apply to future redress payments.
“Where a firm is currently handling a complaint regarding advice given in connection with pension transfers, or receives such a complaint before the outcome of the consultation is known, it should continue to comply with its obligations under the complaints handling rules.”
These rules are:
- To investigate the complaint competently, diligently and impartially
- To assess the complaint fairly, consistently and promptly
The FCA said if following its investigation and assessment, the firms needs to offer redress under the current system, the regulation does not expect it to be fair for the firm to offer to settle on a “full and final” basis until the outcome of the consultation.
It said the FCA would expect the firm to write to the customer explaining why it is not in a position to provide a final response.
However, the firm should also consider what options may be available for dealing with the complaint fairly on an interim basis before the outcome of the consultation is known.
For example, if it is able to do so, the firm may offer provisional redress now and then provide a final response and any further redress (where appropriate) once the outcome of the consultation is known.
It added: “The FCA recognises that for some consumers this may cause a delay in redress. To minimise delay, the FCA expects to consult in the autumn and reach conclusions by spring 2017.”
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