PS22/13: Calculating redress for non-compliant pension transfer advice 

Read  PS22/13 

Why we are changing 

On 2 August, we published CP22/15. We proposed changes to our methodology for calculating redress for consumers who received non-compliant advice to transfer from a defined benefit (DB) pension scheme to a defined contribution (DC) pension scheme. This policy statement summarises the feedback we received and the changes we have  made to the methodology as a result.  

Consumers may have suffered financial loss if they received non-compliant DB pension transfer advice from a firm and would have remained in their DB pension without that advice. We expect firms to use the methodology to calculate how much redress should be paid to consumers to put them back in the position they would have been in if they had remained in their DB scheme.  

Who this is for 

• regulated firms who provide, or used to provide, advice on transfers from DB pension schemes to personal DC pension schemes  
• actuarial specialists who carry out calculations for regulated firms  
• industry groups/trade bodies  
• individual consumers who transferred their pension, and their representatives  
• consumer groups  
• insurers who provide professional indemnity insurance (PII) for regulated firms  

Next steps 

The legal instrument in this policy statement contains final rules and guidance. There will be an implementation period of just over 4 months before the changes take effect on 1 April 2023.  

If your firm is affected by these changes you need to take necessary steps over the next few months to be ready to comply.  

Background 

We last carried out a review of the methodology in 2016 and published final guidance in FG17/9 in 2017, committing to undertake a review every 4 years in the accompanying feedback statement.  

In September 2021, we published a statement announcing that we would start this periodic review of the methodology by the end of the year. 

On 2 August, we published CP22/15, setting out the findings of the review and proposing some changes to the general methodology.

Clarifications to our rules and guidance

We have been asked to clarify the rules and guidance in DISP Appendix 4 that firms must use from 1 April 2023 when calculating redress for non-compliant pension transfer advice.

Consequential losses:

When firms have calculated the difference between the value of the defined benefit and defined contribution pensions (the primary compensation sum), they need to determine any consequential losses (the secondary compensation sum). The secondary compensation sum (DISP App 4.3.29R(2)) should be offset against any gains the consumer has made following the calculation of the primary compensation sum. This avoids consumers being given more redress than they need to put them back in the position they would have been in had they not transferred out.

For example, where the primary compensation calculation shows a gain of £2,000 and the secondary compensation sum is £3,000, the firm owes the consumer £1,000.

Valuation date:

The valuation date for valuing pension benefits is the first day of the quarter, not the first working day or first business day. For example, during the first quarter the new rules are in force, benefits must be valued as at Saturday 1 April 2023.

Consumer price index (CPI):

In PS22/13, there was an error in the legal instrument for calculating post-retirement CPI. The online Handbook has been updated with the correct formula.

Consumer communications:

To comply with their obligations (DISP 1.4.1R(4)), firms must provide explanations of redress offers. We also encourage firms to direct consumers to our webpage on defined benefit pension transfer redress calculations.