There are worrying reports coming from former BSPS members of a surge in offers from IFAs to compensate them for poor transfer advice. These offers are often as a result of claims made in 2021 or even earlier and are, relative to compensation claims paid prior to the recent rise in inflation and interest rates, very low indeed.
Those representing the steelworkers, principally Al Rush but also lawyers Clark Wilmot have written to the FCA , warning them that IFAs are using a spike in gilt yields which have doubled discount rates, to calculate redress on an artificially low basis.
Rather than paying the redress under the conditions at the time of the claim, some advisers have delayed compensation till a time when the market has moved against the steelworker and in the advisor’s favor. The worry is that where savvy IFAs lead, others will follow – FSCS included.
Once again, the complete shambles that has characterised the £3bn exodus of money from a once great pension scheme , is playing against the steelworkers. No doubt there are some powerful forces at work here, not least the PI insurers (still on the hook for much of the redress) but also those trying to manage the books at FSCS, who are the longstop insurer for claimants whose financial adviser has packed it in or been closed down.
What needs to be done.
It is highly unlikely that any of the authorities supposedly in charge of organising the redress scheme, will intervene immediately but they should.
It should be made clear to IFAs that settling claims should be at valuations at the time of the claim and not at a time of the IFA’s choosing. Delays in paying claims can only be justified with good reason and claimants offered compensation at today’s calculations should have a right to have these recalculated based on discount rates prevailing at the time the claim was received.
Rules for the redress scheme
In my response to the FCA’s redress scheme, I’ve made it clear that IFAs should not have control of the timing of the calculation of “valuations”, but that they need to value compensation at the time the claim was or is received. I am arguing this in my response to the FCA consultation CP22/15: Calculating redress for non-compliant pension transfer advice.
Right now , steelworkers are divided between those who have been fully compensated because their valuation was on a full and fair basis, those who have been partially compensated, because they have fallen foul of arcane rules at FSCS relating to ongoing adviser fees and those who are now being unfairly compensated as IFAs seize their window of opportunity to walk away from redress at a bargain price.
Is it any wonder that they talk of a “compensation lottery”?
It’s somewhat more complex than this. I advised and set up the system for redressing pension transfer misselling from 88 to 94 (remember that). Claims can take time to process and the principle was that compensation was determined in the conditions at the time of settlement. But that timing was not of the compensator’s choosing.
Happy to provide evidence that you are wrong if required.
I could argue that taking 40 times the promised benefits from a scheme where the employer’s business was failing was good advice or even that not recommending taking control of funds was negligent.
That aside the IFAs who pay the compensation did not give the advice never set foot in South Wales and never met a steel worker they certainly have no influence on the payment timing.
Is there a comparable case to judge the timing of compensation against?
You might take the standard from a responsible body like the NHS and how they have dealt with the infected blood problem but objectivity has rarely been a feature of these blogs when there is the opportunity to knock the IFA
The fact that a business may be failing should not be the reason for transferring the pension benefits from an independent trust-based defined benefit scheme. Too many IFAs play on member concerns about the health of their employer when it’s the financial strength of the pension scheme which is the loss they take when they are missold their pension transfer.
Given the number of DB schemes in the protection fund I find your generalisation too broad a brush.
Surely doubt on the sustainability of the contributions from the employer, (such as one seeking £1.5Bn, again from the UK taxpayer) is a material consideration.
Likewise comments from the pensions minister that the Public Servant DB schemes are “unsustainable” gives cause for concern.
At the time of the steel workers shambles the sum of all individual TVs probably exceeded the value of the fund again rather like a run on a bank it was necessary to make transfers difficult and PI was used as a weapon
Henry’s idea that IFAs are delaying payments to take advantage of inflation is absurd. Those who get stuck with the compensation payment have no control of the timing of compensation and they are not the ones who have profited from bad advice and rip off investments.
They have already gone into liquidation
IFa have no control of the assumptions for compensation. Once the FOS rules against them, there is a clear timing controlled by the FOS, in which the IFA needs to provide a calculation (always done by an external actuary), based on the Compensation rules at that time.
No IFA could be accused by timing.
The benefits are calculated correctly, based on annuity rates, so people already retired could buy similar guaranteed income. Why should they get more? The FOS gives them another £250 – £500 for the stress incurred, which may be or not enough!
Eugen, you obviously don’t know how the system works!