Savers who were wrongly advised to transfer out of DB schemes will now receive significantly less compensation as a result of spiralling annuity rates.
In some cases people who would have received a £160,000 pot 18 months ago are now looking at a £50,000 compensation deal. Those still awaiting compensation have seen the size of these compensation deals shrink, as a smaller sum now secures a higher annual income via a traditional annuity.
Analysis by OAC, part of the Broadstone Group gives the example of a 50-year old who was misadvised to leave a DB scheme in 2018 with an inflation-linked pension worth £10,00 a year. In January 2022 this individual would have received a compensation package of around £160,000. However, by July this year a 50-year old with the same DB pension would receive compensation of just £50,000.
A number of DB compensation claims are in place after a series of high-profile problems in this area, including problems surrounding advice given to members of the British Steel Pension Scheme. In 2020 the regulator wrote to almost 8,000 former members of BSPS that had transferred benefits since 21017 warning them that they may have received unsuitable advice and as a result may be entitled to compensation.
This figures are calculated as part of OAC’s defined benefit redress tracker. OAC head of redress solutions Brian Nimmo says: “The compensation process is in place to help retirees who suffered from poor advice that led to the loss of this guaranteed income throughout retirement.
“However, over the past 18 months we have seen a shift in the market whereby the rapid rise in projected annuity rates has meant people who did transfer out are now assumed to be able to secure far higher levels of guaranteed income.
“It mitigates the financial damage suffered by many DB transferors and means that they could be due significantly less compensation if they were to bring their case for compensation now.”