Compensation paid to those who were wrongly advised to transfer out of DB pensions has risen for the first time in two years.
This is due to falling gilts years towards on the end of last year, on the back of expectations that the Bank of England will reduce interest rates in the first quarter of 2024.
The quarterly DB ‘redress tracker’ from actuarial consultancy OAC shows that a DB member aged 50, who left a schemes in 2018 with a projected inflation-linked pension of £10,000 a year would now be due around £34,000 in compensation.
This is an increase on the £22,000 the same individual would have received in the last quarter of 2023. However OAC points out this is still a notable drop on the £165,000 in compensation that would have been paid out two years ago, at the beginning of 2022, before interest rates started to rise.
Since that time redress rates have dropped every quarter according to this tracker, which has been developing in line with Financial Conduct Authority rules for calculating compensation payments.
The falling gilt yields have led to higher annuity rates, meaning a smaller compensation sum is needed to secure the same guaranteed income in retirement.
OAC head of redress Brian Nimmo says: “Since the start of 2022 redress has fallen significantly due to the rise in annuity rates. This means complainants could have increasingly secured a healthy guaranteed income from their DC pot through the annuity market in place of their DB pension.
“It now looks like compensation may have bottomed out as we appear to have reached the end of the rate hiking cycle with gilt yields and annuity rates now starting to come down. Redress levels are still far below their historic levels due to the changed economic situation and are worth monitoring as we progress through 2024 and beyond.”