First Actuarial’s Redress Tracker shows that firms advising on defined benefit (DB) pension transfers now face lower compensation costs, typically under 5 per cent of the transfer value.
The new tool is designed to estimate how much firms may need to pay in compensation for DB transfer advice. It provides a picture of redress liabilities by using data from a range of individuals and pension schemes, unlike traditional approaches that rely on a single, “typical” individual.
According to First Actuarial, four years ago, redress was around 40 per cent of the transfer value, but market changes, including lower annuity prices, have significantly reduced this.
The tracker helps firms understand their potential redress liabilities, making it easier to plan finances and manage risk effectively the firm says.
First Actuarial head of redress services Sarah Abraham says: “There’s no such thing as a typical person. That’s why we’ve based our Redress Tracker on 80 notional individuals with varying characteristics such as age. We’ve also represented a range of scheme types, assumptions and methods of calculating transfer values. This modelling should prove particularly useful for firms that need to estimate their prospective redress liabilities across multiple cases.
“Firms may be assessing their redress risk on the basis of out-of-date information, or a ‘typical’ individual or scheme. By allowing for variation across diverse consumers, First Actuarial’s Redress Tracker gives a more realistic picture. In recent years, redress has become a rare outcome. And that’s exactly why our index is so important – an IFA with several pension transfer cases is likely to have some of those rare cases, which wouldn’t get picked up by data based on one individual.
“The Redress Tracker is giving firms a realistic estimate of redress at any one time. But it’s also essential to understand the risk of future movements in redress. Our Redress Tracker provides a valuable starting point. Firms can then commission bespoke training, modelling and qualitative analysis to get a robust understanding of their own portfolio of cases and how to deal with them.”
