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FCA Guidance Consultation GC17/1: Changes to the way firms calculate redress for unsuitable defined benefit pension transfers

FCA Guidance Consultation GC17/1: Changes to the way firms calculate redress for unsuitable defined benefit pension transfers

  • United Kingdom
  • Financial institutions - Asset managers and funds

19-05-2017

Due to fundamental changes in the pensions sector over recent years, the FCA has proposed changes to the current methodology for calculating redress for unsuitable DB transfers, including the underlying assumptions.

Key points include that the FCA proposes:

  • to review the new methodology at least every four years;
     
  • that the methodology will only apply to complaints received by firms on or after 3 August 2016; and
     
  • the deadline for responding to the proposals is 10 June 2017.

Significant proposed changes to the redress methodology include:

  • changing the method of assessing the future level of RPI to use. The FCA proposes that spot rates based on the term to retirement are used;
     
  • assuming a cautious investment mix for preretirement discount rates, which will result in a material increase in redress for those further from retirement;
     
  • applying a fixed rate allowance of 0.75% to the consumer’s personal pension to take account of future personal pension charges;
     
  • using the conduct of business sourcebook figures for mortality rates; and
     
  • making a deduction of 0.6% from the post-retirement discount rate for annuity provider pricing and reserving. 
     

Other proposals include gender-neutral annuity rates and an assumption that consumers are the same age as their spouse.

Read and download a copy of the full briefing here

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