The Financial Conduct Authority has said it will review its redress guidance for unsuitable pension transfers by the end of the year.
The guidance was first published in 2017, with the FCA committing to review it at least every four years.
The FCA also set out its expectations of firms while the review is ongoing, clarifying how firms should be applying or interpreting the guidance in certain areas.
According to the regulator, while the periodic review is ongoing, firms should continue to assess complaints about unsuitable advice “fairly, consistently and promptly” and calculate any redress due in line with the current approach. In addition, firms should also comply promptly with any offer of redress accepted by the consumer.
The FCA said: “As part of the process of preparing for the review, we have identified some areas where firms may also benefit from clarification on how we currently expect redress to be calculated when following the guidance.
“Firms should ensure that they, or any actuarial specialist they have outsourced a redress calculation to, take the following actions when determining the amount of redress to offer. Firms not meeting these expectations should make appropriate changes to their processes before issuing any new redress offers.
“Where firms have already carried out calculations that do not meet the expectations in our guidance, it may be appropriate to review those calculations and contact consumers where they determine that additional redress may be due.”
The FCA said redress should enable consumers to cover the cost of ongoing product charges and regular adviser charges up to normal retirement age, both on the transferred pension and the amount of redress.
For prospective loss cases, the FCA says the redress amount should allow for personal pension charges up to a maximum of 0.75% per year, while the pre-retirement discount rate should be netted down to allow for ongoing product charges and regular adviser charges in percentage terms up to normal retirement age.
Meanwhile, regular adviser charges should carry on in full at the current level.
For actual losses, the personal pension value used for redress calculation should take account of any adviser charges that were incurred when the pension moved into decumulation at retirement.
Where another firm is giving ongoing advice, firms should also allow for ongoing adviser charges. This is to compensate the consumer for charges that they would not have incurred if they had not been advised to leave their defined benefit scheme.
The FCA also clarified the impact of redress on the consumer’s tax position, noting that where redress is paid in the form of a lump sum, it should be adjusted to take account of the consumer’s individual tax position and wider circumstances.
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