The aim of redress is to compensate the customer for the unsuitable advice that they have received from a financial advisor. In a pensions context this includes advice to transfer a defined benefit pension out of an occupational scheme, advice to opt out of accrual in a defined benefit scheme, or advice to take out a free standing FSAVC rather than to pay AVCs to the occupational pension scheme.
Clearly redress is required only where the customer has incurred a financial loss as a result of the actions taken. In order to establish whether this is the case, we first look to the Financial Conduct Authority Guidance on calculating redress for unsuitable defined benefit transfers (FG17/9).
“Where a firm or adviser has failed to give compliant and proper advice, or has committed some other breach of the relevant requirements, the basic objective of redress is to put the customer, so far as possible, into the position they would have been in if the non-compliant or unsuitable advice had not been given or the breach had not occurred: “ Financial Conduct Authority FG17/9
In order to satisfy FG17/9, the question of what position the customer would be in had they not received the unsuitable advice needs to be addressed, including giving consideration to any actions that they would have taken in the absence of that advice. As such, whether the need for potential redress is as a result of a customer complaint or a pro-active review of the advice given, each customer’s circumstances must be assessed individually.
The calculation of the loss (or gain) compares the value of the benefits arising in the actual situation with those which would have arisen under the alternative “no unsuitable advice” scenario. But this alternative scenario is not always clear cut…
Where the need for a loss assessment arises from upholding a customer complaint, the alternative scenario may be clear as it often forms the basis of the reason for the complaint. Similarly, if a complaint has been adjudicated by the Financial Ombudsman Service (FOS), the FOS decision will set out the regulatory guidance basis or scenario to be assumed for the purpose of assessing loss.
However, even where the alternative scenario initially appears clear, a need for judgement may arise if new information becomes available which means that certain aspects of the alternative scenario must be reconsidered. A good example of this is a scenario in which a customer has taken a Pension Commencement Lump Sum and/or income drawdown at an age earlier (or indeed later) than the normal retirement age of the occupational pension scheme from which they have transferred. In this case, judgement is needed as to the date that the Investor would have retired from the occupational scheme had they not received the unsuitable advice. Whilst this might sound like a minor consideration, the impact on redress of this assumption can be material.
Another possible complexity is the impact of service and contribution restrictions applied where AVCs could have been paid to an occupational pension scheme – the redress guidance, having been written to address transfer loss assessment, does not give a steer on how to deal with these and so judgement is required to come up with a fair and reasonable alternative scenario.
For loss assessment arising from a pro-active review of advice, the position is yet more complicated. In these circumstances, careful consideration of the facts along with the customer’s needs and motivations, together with the relevant FCA guidance is required in order to ensure that the loss assessment provides for the fair and ‘right’ outcome to the customer. It is often optimal in this situation for the redress consultant and the person carrying out the review of the advice, to work together to agree the alternative scenario.
OAC has been carrying out pension and investment redress calculations for over 25 years. We are recognised as experts within the industry and have extensive experience in dealing with both straightforward and more complicated loss situations. As well as carrying out redress calculations arising on the back of customer complaints we provide actuarial support on past business reviews – both preparing calculations and offering wider consultancy around each stage of the process, from data gathering to drafting offer letters.
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What is pensions redress?
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