Defined benefit pension savers may receive “significantly less compensation” due to soaring annuity rates, new analysis by actuarial consultancy OAC has revealed.
According to the consultancy, many people who were previously ill-advised to transfer out of their DB pension are now likely to be due around two-thirds less compensation compared to the start of 2022.
The past 18 months have seen annuity rates soar, meaning that many transferors will now be projected to be able to secure a historically high level of guaranteed income from their remaining pension pot. As a result, this will lessen the financial disadvantage for those seeking compensation after being poorly advised to transfer their pension and therefore, the compensation they are due.
OAC’s Defined Benefit Redress Tracker shows that a transferor making a compensation claim in January 2022 could have been entitled to around £160,000 but the figure had fallen sharply to £50,000 in July 2023.
Since 2018, redress has typically ranged between £100,000 and £150,000 as suppressed annuity rates minimised the replacement income that those who transferred could have secured had they sought redress in the period to 2022.
Brian Nimmo, head of redress solutions at OAC, said: “Defined Benefit pensions offer huge security and peace of mind through retirement. The compensation process is in place to help retirees who suffered from poor advice that led to the loss of this guaranteed income throughout retirement.
“However, over the past 18 months we have seen a shift in the market whereby the rapid rise in projected annuity rates has meant people who did transfer out are now assumed to be able to secure far higher levels of guaranteed income. It mitigates the financial damage suffered by many DB transferors and means that they could be due significantly less compensation if they were to bring their case for compensation now.”
