It follows a consultation in March to improve how best to put clients, so far as possible, into the position they would have been in had they not received unsuitable advice.
At the time, the FCA estimated that firms received between 2,700 and 8,000 pension transfer complaints each year, and paid an average redress of approximately £20,000 ($26,415, €22,479) to £60,000 per complaint.
The updated guidance applies to any complaint received after 3 August 2016 and any complaint received before that date but not settled on a full and final basis by 3 August 2016.
Not worse off
The FCA said that firms should consider how far they should take into account any adjustments to the benefits which the customer would have been eligible for under the DB pension scheme when they complete the redress calculation.
“If it is not possible to pay the redress amount into the customer’s personal pension by augmentation, the redress should be paid in the form of a lump sum to the customer. This should be adjusted to take account of the customer’s individual tax position,” the guidance said.
Firms have been warned to be mindful of factors such as tax to ensure that a customer is not left in a worse position.
The FCA added that “each case should be assessed individually”.
Factors for consideration
In calculating the appropriate redress, firms should take into account:
- retail price index (RPI) inflation;
- consumer price index (CPI) inflation;
- the consumer’s retirement age;
- the pre-retirement discount rate
- pension increases in payment;
- personal pension chares; and,
- the post-retirement discount rate.
Additionally, the FCA included guidance on mortality, spousal age difference, and enhanced transfer value.