Unsuitable DB pension transfer to personal pension? Advisers have woken up this morning to the Financial Conduct Authority's announcement that next year may see an update to the methodology used to calculate redress due in such situations.
The FCA is concerned that the current redress methodology may no longer put consumers back in the position they would have been in had they stayed in their DB scheme. We will have to wait for the Consultation Paper to see why that is the case but it is likely due to Pension Freedoms meaning the PWC Assumptions are outdated.
What will the new methodology look like? The FCA has not yet announced when the Consultation Paper will be published, maybe to build up some hype and anticipation within the industry in the meantime! Until then it will not be clear what precisely the FCA's concerns are and whether this means a more or less favourable calculation or just something different. However, it is anticipated that one of the main issues for the consultation will be whether the recently updated assumptions that should be used to calculate redress remain fit for purpose. Following the sweeping changes to the pension freedom rules in April of last year it is arguable that the Financial Ombudsman Service's (FOS') current methodology is based on outdated assumptions. Advisers will no doubt also have their own thoughts as to the suitability and complexity of the current assumptions. It is hoped that any changes to the methodology will at least provide some much needed certainty on the topic.
The announcement raises further queries as to what will be the position in the interim period between now and any final conclusion (not due until spring 2017). The FCA says that they expect firms in some cases to offer a provisional redress now and then provide a subsequent further redress calculation once the outcome of the consultation is known. This is unlikely to appeal to many firms given the cost often involved in carrying out the calculations if it could be wide of the actual redress given to the complainant. This is an area of uncertainty and firms should draw complainants' attention to the FCA's wording in the recent announcement to explain the inevitable delay to their complaint being dealt with.
How will FOS deal with pension redress cases in the interim period? Will firms effectively be paying interest on any awards whilst the FCA makes their mind up as what changes are necessary? These questions are also left unanswered
We will have to wait and see what changes (if any) come out of the consultation and anticipate that readers will want to keep a close eye on developments. It seems that more changes are inevitable which may not necessarily be unwelcomed, but no doubt advisors will want to know sooner rather than later where they stand on the issue.