FCA to reform DB transfer redress calculations

The FCA announced in August 2016 that it planned to review the methodology following concerns that there may be more appropriate ways to calculate redress so that consumers are more likely to replicate the benefits that they held in their DB pension scheme.

The proposed changes to the methodology include updating the inflation rates used to better reflect likely inflation, as well as updating mortality assumptions and making allowance for gender-neutral annuity rates.

The FCA also plans to update the pre-retirement discount rate so that it acknowledges the Pension Protection Fund, and update the post retirement discount rate and acknowledge the likelihood that consumers will take a pension commencement lump sum.

The changes will also include assumptions about the proportion of people married or in a civil partnership at retirement and making allowances for enhanced transfer values.

Any changes to the methodology will apply to future redress payments only.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: “Choosing to transfer out of a DB pension scheme is a big decision for consumers, which requires suitable advice. When that advice proves to be unsuitable, it is important that consumers receive appropriate redress.

“We think that there may be more appropriate ways to calculate redress for pension transfer complaints in future, and that is why we are looking at how the calculation works in order to achieve a fair outcome for consumers.”