Source · Select Committees · Public Accounts Committee
Recommendation 16
16
Many BSPS members have not received the full amount of compensation owed to them due...
Conclusion
Many BSPS members have not received the full amount of compensation owed to them due their advisers being unable to pay compensation. The FCA imposes limits on the compensation awarded by both FOS and FSCS, and the FSCS’s compensation limits are significantly lower.52 This unfairly impacts those whose advice firms have entered insolvency, and in total BSPS members have lost £21 million in compensation due to FSCS’s financial limits.53
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.