Recommendation 4

HM Government Not Addressed

In considering the implementation of a consumer redress scheme for BSPS members the FCA should consider how further redress mechanisms can be implemented more quickly and provide fair compensation. 4.1 The FCA has considered how further redress mechanisms can be implemented more quickly and provide fair compensation. 4.2 The FCA Business Plan for 2022/23 sets out its plans to improve the redress framework, including carrying out redress exercises with firms where appropriate, so they can quickly remedy harm. There are several ways for firms or the FCA to deliver redress to consumers, including a complaints-led approach, voluntary firm-led approaches, or a more formal redress scheme imposed by the FCA on a statutory basis (such as section 404 multi- firm redress schemes and single firm redress schemes). Some of the more formal approaches may take more time to implement than others, but redress should be consistent and fair regardless of which approach is chosen. 4.3 There are a number of factors that can affect how quickly consumers can access redress including consumer engagement and firms’ willingness to co-operate. The FCA understands that many consumers who transferred out of BSPS are not considering making a complaint about the advice they were given. Some of these consumers have vulnerable 18 characteristics and need help to identify whether the advice they were given was unsuitable. The FCA took this into account when considering whether a section 404 scheme was desirable compared to alternative options to ensure consumers receive redress. 4.4 The power in section 404 of the FSMA is a rule-making power (see paragraph 2.5). Before consulting on a consumer redress scheme, the FCA must carefully consider whether the relevant legal tests set out in FSMA are met. Prior to consulting on a scheme, the FCA will actively seek to engage in discussions with the industry and consumer groups about the issue. This process will assist in the consideration of all the available options and, if it is ultimately decided to pursue a scheme in order to address the issue, will ensure the FCA has a clear understanding of the issues that will need to be addressed in the formal consultation. 4.5 Rules made by the FCA under this power will be subject to a formal public consultation, including a cost benefit analysis. The FCA must also allow a reasonable amount of time for consultees (including financial services businesses) to submit their views, and for the FCA to give these responses due consideration. Where the FCA’s proposals are more complex and/or have a greater impact on firms, as will often be true in the case of a section 404 scheme, the evidence base the FCA needs to collate will necessarily be more comprehensive, and the consultation time period may need to be longer. In the case of CP 22/6, the consultation was open for three months. 4b: PAC recommendation: It should also consider how to resolve differences in the levels of compensation received by BSPS members to date, and how this compares to the amount that other members will receive from the proposed FCA redress scheme. 4.6 The FCA will consider the feedback from the Committee as part of its wider response to the BSPS redress consultation and broader feedback statement on compensation as set out below. 4.7 The redress calculation methodology is designed to respond to changes in financial markets by taking account of the market’s expectations of economic variables such as inflation and investment returns. When carried out correctly, redress calculations should produce an appropriate redress figure at the point at which the redress is calculated. This is because the calculated figure is based on a best estimate of the economic circumstances to which the consumer is likely to be exposed from that time. The methodology is designed to put consumers back in the position they should be in by estimating the amount they will need at retirement to purchase an annuity that would replicate the DB pension benefits they would have received. That amount is then discounted to determine the amount needed in today’s terms. The redress amount is then the difference between the amount needed in today’s terms and the current DC pension pot. Paragraph 4.8 explains how changes in the amount of compensation a consumer receives does not mean they are not receiving the right amount of redress. 4.8 The FCA considers it most likely that changes in economic circumstances between calculations explain why consumers in apparently similar positions (eg age, length of service etc) receive different levels of compensation. Paragraph 4.7 explains that the redress calculation is a ‘point in time’ calculation. Irrespective of when during a given quarter a redress calculation is carried out, firms are expected to calculate redress ‘as at’ the start of the quarter using assumptions that relate to economic circumstances at that date. Economic circumstances can change between quarters, but, as the meth