The typical defined benefit transfer complainant is now likely to receive no compensation at all for poor advice due to rising annuity rates and more buoyant stock market returns.
These findings come from Broadstone’s latest redress tracker, which indicates the level of compensation due to those who have been wrongly advised to transfer out of a company DB pension.
The latest edition, to the end of 2024, shows that compensation for a typical transfer redress case continues to fall, and as a result there may not be any redress payable in many cases.
This trend continued at pace in 2024 and accelerated in that last quarter of the year as gilt yields rose markedly, decreasing the assessed value of the transferred DB liabilities. At the same time asset values also rose further.
With financial conditions softening and rates rising, the Redress Tracker demonstrates the radical decline in potential DB redress since the start of 2022 when average compensation for the use case was above £150,000.
This tracker follows the example of an individual who left their scheme in 2018 aged 50, with a pension of £10,000 a year, which would receive inflation-linked increases when in payment. The tracker was developed in line with Financial Conduct Authority (FCA) rules for calculating redress with the individual assumed to have invested their funds to earn returns in line with the FTSE Private Investor Index.
Broadstone adds that the range within which redress can fall will depend on the generosity of the original transfer value and the investment performance since but it is now becoming more common for there to be no redress payable in many cases.
Broadstone head of redress solutions Brian Nimmo says: “There will now be many cases where no loss is experienced for those transferring out of their DB pension due to effective investment performance and the size of the original transfer value.
“As our Redress Tracker demonstrates, this is a radically difficult scenario from just a couple of years ago when our average complainant could have been entitled to over a hundred thousand pounds.
“However, it is also true that many individuals still face losses requiring redress and, with the potential requirements of CP23/24 coming down the line, it is important that financial advisers are preparing appropriately. This is likely to require expert, specialist advice and actuarial support to help them scope out how much capital is needed to be set aside for possible claims.”
