The Financial Conduct Authority (FCA) has made several changes to its proposed methodology for calculating redress for bad advice on defined benefit (DB) pension transfers following industry feedback.
In a finalised guidance published on Friday, the regulator updated various elements of the redress calculation including the way enhancements are valued, allowing for spousal age differences to be considered, and changes to pre-and post-retirement discount rates.
The guidance will take immediate effect, and will apply to any complaints received from 3 August 2016 as well as those not fully settled by that date. Complaints about older cases will also be eligible under certain circumstances.
The regulator will review the methodology at least every four years, it said.
Making system 'appropriate'
The changes, which are effective from today, follow the FCA's proposals published in March aimed at making the system more 'appropriate'.
The FCA first announced it planned to review redress methodology in August 2016, following concerns there were better ways to calculate redress, allowing consumers to better replicate the benefits they had held in their DB scheme.
Back then the proposed changes included updating the inflation rates used in calculations and updating mortality assumptions.
The regulator received 27 responses to its consultation from a range of respondents, including pension and insurance providers, advisers, actuarial firms, individuals, and a professional body.
It said the feedback had been generally supportive and saw the proposals as a "logical and pragmatic approach to a complex issue".
Based on the feedback the FCA made the following changes to the guidance consulted on:
- revised the inflation rate assumption to reflect changes to data published by the Bank of England;
- removed the life-styling element in the pre-retirement discount rate;
- allowed for the use of the actual personal pension charge where known, up to a maximum of 0.75%, for future personal pension charges;
- allowed for adviser charges on top of fund charges, where these have been applied or are being assumed to continue;
- allowed for pension commencement lump sums which are paid in addition to, and not instead of, an annual income;
- allowed for the use of actual marital status and known pension commencement lump sum payment percentages in cases of actual loss;
- increased the discounted mean term for valuing future income benefits at higher ages;
- allowed for the use of actual age of the spouse, where known;
- amended the valuation of enhancements received alongside transfer values;
- set out that the revised methodology should be applied by a firm which upholds a complaint about a pensions transfer between 29 April 1988 and 30 June 1994 (the period covered by the Pensions Review) in certain circumstances, specified in the guidance.
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