Out-Law News 2 min. read
17 Nov 2022, 9:17 am
The UK’s Financial Conduct Authority (FCA) has called on financial services firms to review how they calculate compensation owed to retirement savers encouraged to transfer out of ‘final salary’ pension schemes on the strength of unsuitable advice.
The FCA has confirmed that it is exploring reports that some firms are failing to include all fees and charges in their defined benefit pension advice redress calculations, against guidance it recently updated.
In a statement, the FCA said: “The information suggests these firms are not considering ongoing fund costs and/or fully allowing for ongoing adviser charges in redress calculations. Some of these firms may also be unfairly terminating consumer contracts after consumers make a complaint. We are looking into these matters and where we identify firms not calculating redress correctly, we will take action, using the full range of our powers which may include appointing an independent professional to check calculations and help consumers get the right redress.”
“While we have only seen a small number of firms calculating redress incorrectly, we remind all firms undertaking calculations of the importance of allowing for fees and charges correctly,” it said.
Firms are responsible for calculating appropriate redress where consumers received defined benefit pension transfer advice that was either negligent or which contravened regulatory requirements and the provision of that advice caused the saver to transfer all or part of the value of the benefits they had accrued from that scheme into a personal pension scheme when they otherwise would not have. The objective of redress is to put the customer, as far as possible, into the position they would have been in had the non-compliant or unsuitable advice not been given, or the breach had not occurred.
The FCA has published pension transfers redress guidance (9-page / 227KB PDF) to help firms understand their obligations. In a recently updated statement issued alongside that guidance, the FCA clarified its expectations of firms – including in respect of allowing for ongoing product charges and ongoing adviser charges. The FCA has urged firms to “take special care, given the potential for consumers not to receive the compensation they deserve”. It has separately published a list of questions and answers to help savers understand the redress regime and their entitlements under it.
Hannah Ross of Pinsent Masons said: “The FCA’s updated statement on pension transfers revised guidance indicates the high level of engagement firms can expect from the FCA in this complex area.”
“The statement makes it clear that the FCA will not hesitate to clarify the scope of its defined benefit pension transfer guidance in light of new information received. It also flags the regulator’s increasingly ‘assertive’ approach to firm supervision: the full range of the FCA’s powers will be used where the regulator identifies firms which have incorrectly calculated consumer redress, or where firms are unfairly terminating consumer contracts after consumers make complaints,” she said.
“In light of this updated statement, firms will need to check carefully their redress calculations include all ongoing fees and product charges,” Ross said.