First Actuarial, which offers a specialist pension transfer redress service, calls for a fresh approach to assessing whether to uphold complaints about pension transfer advice. The firm proposes that assessments consider a range of factors, including today’s historically low redress payments.
Sarah Abraham, Head of Redress Services at First Actuarial, says: “Redress is important because there will always be genuine cases where people’s lives have been decimated by poor pensions advice. But working on the basis that the consumer is always worse off after transferring out of a Defined Benefit scheme is unhelpful.”
The high uphold rate of Defined Benefit (DB) pensions transfer complaints rests on the assumption that consumers have suffered significant material harm as a result of giving up their guaranteed pension. But in many present-day cases, the consumer is assessed to be better off due to the advice to transfer. These cases are emerging against a backdrop of falling redress payments.
Sarah says: “Our most recent update to the First Actuarial Redress Tracker shows that the likely redress on a book of Defined Benefit transfer advice remains below 5% of the total transfer value, even allowing for the recent volatility of some asset classes. This is a sharp decrease from only four years ago, when redress was typically around 40% of transfer value.”
As part of its efforts to foster growth, the Government aims to lighten the regulation load which can slow down key sectors like financial services. This new thinking opens up the opportunity to update the redress regulatory regime to reflect the impact of current market conditions on compensation payments.
In her first Mansion House speech, Rachel Reeves identified redress as a “drag on investment” and a source of uncertainty in the sector. She undertook to overhaul the work of the FCA (Financial Conduct Authority) and the FOS to “develop the right approach to redress”. With its New approach to ensure regulators and regulation support growth, the Government confirmed that the role of the FOS would be assessed at the same time.
Sarah says: “In my mind, that means making the FOS more business-friendly and upholding cases only where consumer have genuinely been poorly advised. And it means reconsidering the relative value of DB and Defined Contribution pensions in light of current market conditions rather than those of several years ago. The FCA’s starting point is that most consumers are best advised to stay in a DB scheme. This in turn drives FOS decision-making, which is too simplistic and fails to consider movements in redress payments and the value that consumers place on pension flexibility. It’s important to look at the big picture.”
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