People who were ill-advised to transfer out of their defined benefit pension are seeing their levels of compensation fall heavily due to rising gilt yields, says OAC.
According to analysis from the actuarial consultancy, part of the Broadstone Group, the sharp rise in annuity rates over the past 18 months mean that many transferors will now be projected to be able to secure a much higher level of guaranteed income from their remaining pension pot. However, this will minimise the financial disadvantage for those seeking compensation and therefore the amount they are due.
The analysis gives an example of an individual who left their scheme in 2018 aged 50 with a pension of £10,000 per annum, which would receive inflation-linked increases when in payment. If they made a compensation claim in the first quarter of 2022, they could have been entitled to over £165,000.
However, this fell significantly to just over £50,000 as of the second quarter of 2023 and has since more than halved to around £22,000 in the third quarter of this year.
Since 2018, redress has typically ranged between £100,000 and £150,000 as suppressed annuity rates have minimised the replacement income that transferors could have secured had they sought redress in the period to 2022, OAC said.
Brian Nimmo, head of redress solutions at OAC, said: “Our DB Redress tracker seeks to illustrate the levels of compensation available to those making a claim against poor advice when they transferred their pension. It demonstrates how the rise in gilt yields has meant those who did transfer their DB pension are now able to secure a healthy guaranteed income through the annuity market.
“While this mitigates the potential financial damage from transferring a DB pension, it does mean that many could now be due significantly less compensation if they were to make a claim now.”
