PIMFA has demanded that members who were improperly advised to leave the British Steel Pensions Scheme be moved into the Pensions Protection Fund in order to ensure that they can receive the guaranteed income that they were wrongfully advised to forgo.
In its response to the Financial Conduct Authority’s (FCA) consumer redress consultation, PIMFA demanded that former members of the British Steel Pensions Scheme (BSPS) be given the chance to be placed back in the position they would have been in had they not transferred out. The Pension Protection Fund (PPF), which would pay out the guaranteed income that former BSPS members had foregone, would be enrolled as a result.
Under the proposal put forward by PIMFA, advice firms would still be required to pay redress by topping up an individual’s pension provision to a level which would be invested directly into the PPF to ensure they received a guaranteed income for life, which would be equal to what they would have received, should they have gone into the PPF in the first place.
PIMFA head of public affairs Simon Harrington says: “Given that the FCA considers the major driver of unsuitability to be an individual giving up their guaranteed income, it is our view that the fairest and most logical way to put the individual back in the position they would have found themselves in would be to replicate it. 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 DB income.
“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 (CETV) 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 expressed concerns about the influence of claims management companies (CMC), which they say encourage many people to file lawsuits against advisory firms even when their clients believe they obtained a favourable outcome by leaving the original pension plan.
PIMFA also recommended that a high-profile redress plan should take into account an opt-in approach as being more advantageous to businesses and consumers alike because those who are most deserving of redress will be processed more quickly and made good in a more effective way.
PIMFA expressed doubts regarding the FCA’s expectation that Professional Indemnity Insurance (PII) providers will offer coverage for claims to the extent that the Regulator has specified. Providers have already pulled their insurance in advance of claims in certain cases, thus it stands to reason that insurance policies renewed before the redress process is put into place would include BSPS carve outs in the event of possible claims.
Harrington adds: “We are extremely concerned about the ability of firms to be able to withstand a high number of claims and do not believe it is reasonable to expect firms who are subject to multiple claims to be able to draw on capital reserves to cover them, regardless of whether or not they hold adequate PII. These firms will fail.
“The risk of firms subject to multiple claims to default is an acute risk. It follows logically that this is in turn will lead to further pressure on Financial Services Compensation Scheme levies for other firms as well as inevitably leading to further centralisation in the market.”
