Source · Select Committees · Public Accounts Committee
Recommendation 15
15
The FCA provides guidance on how compensation should be calculated and sets the rules for...
Conclusion
The FCA provides guidance on how compensation should be calculated and sets the rules for how compensation is delivered. Calculations use complex financial assumptions which are updated every three months in accordance with market performance, and therefore are subject to changes in the market which causes significant variation in the amount of compensation delivered to BSPS members. The FCA updated the calculation in 2021 causing members who sought compensation early to receive significantly lower amounts than those who claimed after 2021.49 Similarly, the FCA has imposed limits on the compensation awarded by the FSCS, which is capped at £85,000 for firms that failed after April 2019 and £50,000 for firms that failed before. This further unfairly penalises those who followed the FCA’s guidance and sought compensation early.50 Members are unable to seek further compensation, and many feel they have been treated unfairly because of the timing of their complaint; as described by one former member, the prospect of not getting their rightfully deserved compensation is both un-just and heart-breaking.51
Government Response
Not Addressed
HM Government
Not Addressed
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 methodology is designed to take account of these changes, these differences do not mean there are times at which it is more or less favourable to have redress calculated. The methodology works in a way that means calculations undertaken at different points in time always target an amount which aims to put a consumer back in the position they should have been in, by providing enough to purchase the same benefits via an annuity.