On the go: Adviser trade body the Personal Investment Management & Financial Advice Association has called for those who were wrongly advised to transfer out of the British Steel Pension Scheme to be transferred into the Pension Protection Fund, so they can once again have a guaranteed income.
In its response to the Financial Conduct Authority’s BSPS redress consultation, Pimfa said past members of the scheme should be placed into the PPF, which would pay out the guaranteed income they had previously given up.
Under Pimfa’s proposals, advice companies would still have to pay redress, but this would happen by topping up an individual’s pension provision to a level that would be transferred directly into the PPF.
In turn, this would ensure they received a guaranteed income, which would be equal to what they would have received if they had gone into the pensions lifeboat in the first place.
Pimfa head of public affairs Simon Harrington said it would be “logical” and “fair” to put the individual back in the position they would have found themselves in.
“Current proposals to provide the individual with a cash lump sum simply perpetuate the problem of BSPS members having a cash lump sum, which, in the FCA’s view, is unequal to the value of the benefits derived from a [defined benefit] income,” he said.
“We accept that such a proposal would have to take consideration of member withdrawals to date, as well as whether or not the top-up would be to the original cash equivalent transfer value or the CETV required to receive the same level of income from the PPF.
“But we do strongly believe that it is in keeping with the broad principle of putting these consumers back in the position they would have found themselves in.”
Pimfa also raised concerns about claims management companies encouraging members to bring a complaint against an adviser, even if the steelworker believes they had a good outcome by transferring out.
An unintended consequence of the redress scheme could also be the potential for CMCs to take advantage of instances where clients are referred to the Financial Ombudsman Service, Pimfa said.
While people should be able to appeal judgments, an increased level of claims to be processed by the ombudsman will make processing claims slower, it said.
As a result, the overall cost to companies of the redress scheme is also likely to be significantly higher than the FCA has set out in its cost-benefit analysis.
In March, the FCA set out plans to deliver £71.2mn in compensation to former members of the BSPS who received unsuitable advice to transfer out of their pension.
At the time, the regulator estimated that this will affect 1,400 steelworkers, and around 40 advising companies will enter insolvency if the proposals go ahead in their current form.
This article first appeared on FTAdviser.com
