Finalised Guidance 17/9[1] (FG17/9) sets out how firms should calculate redress for unsuitable defined benefit (DB) pension transfers. When we published FG17/9 in 2017, we committed in the accompanying Feedback Statement[2] to review the guidance at least every 4 years.
The purpose of this statement is to:
- Confirm that we intend to start a periodic review of the redress guidance by the end of 2021.
- Set out our expectations of firms while the review is ongoing, including clarifying how firms should be applying or interpreting the guidance in certain areas.
The guidance is used by firms to put consumers back in the position they would have been if they had remained in their DB scheme. It is done by calculating appropriate redress where:
- Consumers received advice from the firm which was negligent or contravened relevant requirements.
- If the advice had not been negligent or had complied with the relevant requirements, the consumer would not have transferred all or part of the cash value of accrued benefits from the DB pension scheme into the personal pension scheme.
The guidance is based on the approach for the Pensions Review of the 1990s, with the assumptions updated periodically since. The assumptions were last updated when we published FG17/9 in 2017, to take account of changes in the pensions environment.
If we decide to make further changes to the guidance following this review we will consult on these.
Our expectations of firms
While the periodic review is ongoing, firms should continue to:
- assess complaints about unsuitable advice fairly, consistently and promptly
- calculate any redress due in line with the current approach
- comply promptly with any offer of redress accepted by the consumer
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.
Allowing for ongoing product charges and ongoing adviser charges
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:
Ongoing product charges
- Firms should treat any expected future charges which are not adviser charges (and in relation to a personal recommendation) as product charges for the redress calculation.
- Firms should allow for all product charges in the redress calculation. This includes, but is not limited to, platform charges, asset-based charges such as ongoing fund charges and product wrapper charges including any regular administration fees or custody charges up to the cap of 0.75%.
- Where consumers are invested in portfolios which are likely to involve frequent asset trading incurring transaction charges as well as fund management charges, firms should also include an allowance for reasonable transaction costs.
Ongoing adviser charges
- Firms should allow for ongoing adviser charges in redress calculations, including where a consumer is now receiving ongoing advice from another firm.
- Regular adviser charges should be assumed to continue in full, at the current level.
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.
Where firms use any other method to take account of future product and ongoing adviser charges, e.g. for non-percentage-based charges, they should satisfy themselves that the result achieves the same intent.
For actual loss cases:
The personal pension value used for the redress calculation should take account of any adviser charges that were incurred when the pension moved into decumulation at retirement.
Termination of client contracts
Firms should allow for ongoing adviser charges in redress calculations if the consumer is currently paying these charges, or was doing so to the firm that advised them to transfer before making a complaint or participating in a past business review (PBR).
If the consumer terminated the contract with the firm that advised them in connection with the complaint or PBR, the firm should have given the consumer a clear explanation of the effect that this would have on the redress calculation.
If the firm that advised the consumer terminated the contract after or in anticipation of a complaint, the ongoing adviser charges prior to the complaint or PBR should be used in the redress calculation. In line with Principle 6 and the requirement to handle complaints fairly under DISP, firms should not withdraw or change the cost of ongoing advice services without good reason. For example, if a consumer is paying for ongoing advice services prior to a complaint or past business review, it may not be appropriate for the firm to withdraw services or change their cost unless requested by the consumer, and with a clear disclosure of the effect that would have on the consumer’s redress calculation. See FG17/9 paragraph 27[3] and FG17/9 Feedback Statement page 5[4].
Impact on consumer’s tax position and/or benefits entitlement
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.
For tax, firms should:
- check if the consumer is a non-taxpayer
- check if any payment would change the consumer’s marginal tax rate
- adjust the redress payment accordingly so that the consumer is not disadvantaged by the payment
For wider circumstances, firms should:
- check if the consumer receives means tested benefits
- check if any payment would change the consumer’s eligibility for means tested benefits
- adjust the redress payment accordingly so that the consumer is not disadvantaged by the payment