The FCA Determined to Review the Redress for Unsuitable Pension Transfer Advice

Yes. In 2016 the FCA announced a review of how firms calculate redress (compensation) for unsuitable defined benefit pension transfer advice, because the method then in use dated from the 1990s. It went on to publish updated guidance in 2017 and has since updated the method again. If you think you were given unsuitable transfer advice, you can complain to the firm for free and, if you are not happy with the answer, take it to the Financial Ombudsman Service.

The 2016 announcement

This article was first published in August 2016, when the FCA said it would review how redress is calculated for unsuitable advice to transfer out of a defined benefit pension. It has been updated to explain what has happened since.

At the time, the FCA said the method used to calculate redress no longer reflected the financial security that consumers had given up. The method used by firms and the Financial Ombudsman Service had been designed for the Pensions Review of the 1990s, which looked at mis-sold personal pensions.

Pension transfer advice is given to people thinking about leaving a defined benefit scheme, which guarantees a retirement income, in favour of a personal pension where the outcome depends on investment returns. If that advice is unsuitable, the consequences can be serious. The person may not have understood the risks, the investment returns they hoped for may not have materialised, and they may have ended up with far less than the guaranteed pension they gave up. Redress is the amount the firm that gave the unsuitable advice must pay to put that right.

The aim of the review was a method that, as far as possible, puts the consumer back in the financial position they would have been in if they had not followed the advice and had stayed in their defined benefit scheme.

In 2016 the regulator said it intended to consult on changes in the autumn of that year and to reach a conclusion by spring 2017.

The FCA also made clear that the underlying principles for handling these complaints would stay the same: complaints must be dealt with fairly and promptly.

While the review was under way, the FCA said firms should not settle complaints using the old method if that would not be fair to the consumer. Firms were expected to write to the consumer explaining the position and to consider other options in the meantime, such as offering provisional redress with a final payment once the outcome of the consultation was known.

Not everyone agreed with the approach. Steven Cameron, pensions director at Aegon at the time, questioned whether reviewing the redress method was the only answer. He argued that the regulator should also improve the way good advice on moving out of defined benefit schemes was defined, because comparing a transfer with the cost of buying an annuity did not reflect the flexibility that pension freedoms had introduced.

What happened next

The FCA consulted on a revised method and, in 2017, published updated guidance for calculating redress for non-compliant pension transfer advice. It updated the method again more recently, with changes taking effect from April 2023. The updated approach includes giving consumers the option, in many cases, of having redress paid into a pension rather than as a cash lump sum.

The way redress is calculated depends on market conditions, including gilt yields and annuity prices, and the FCA publishes updated assumptions for firms to use. When gilt yields rose sharply in 2022, the value of redress for many people fell, for the same reasons that transfer values fell. Our article on how gilt yields affect transfer values explains why.

As historic context, in 2023 the FCA also introduced a consumer redress scheme for members of the British Steel Pension Scheme who received unsuitable advice to transfer between 2016 and 2018.

Since then, the FCA has also tightened the rules on DB transfer advice itself. Since 1 October 2020, firms have generally been banned from contingent charging, where the adviser is only paid if the transfer goes ahead, with limited exceptions for serious ill health and serious financial hardship. The FCA's starting assumption is that a transfer is unlikely to be suitable for most people. You can read the FCA's consumer guidance on its pension transfer page.

The details of the current redress rules are set out on the FCA's website. If you are affected, check the latest position there or with the Financial Ombudsman Service rather than relying on older articles.

What to do if you are worried about past advice

If you transferred out of a defined benefit pension on advice and are worried that the advice was unsuitable:

1. Complain to the firm that advised you. Explain why you think the advice was unsuitable. Making a complaint is free.
2. Go to the Financial Ombudsman Service if you are not happy with the firm's answer, or it has not replied within eight weeks. The ombudsman's service is free. There are time limits, generally six years from the advice or three years from when you knew, or should reasonably have known, you had cause to complain.
3. Contact the Financial Services Compensation Scheme (FSCS) if the firm has gone out of business. The FSCS may be able to pay compensation up to its limits.

You do not need to use a claims management company or a solicitor to complain, and doing so usually means paying part of any compensation in fees.

For free, impartial guidance, contact MoneyHelper. Fraudsters sometimes target people who have lost money, offering to recover it for a fee. Check the FCA ScamSmart site and the FCA Register before dealing with any firm.

This website does not review past advice or help with complaints. If you are thinking about a transfer now and would like to understand how DB transfers and the advice process work, you can book a free chat about how the process works. It is general information, not advice.

Frequently asked questions

What is pension transfer redress?

Redress is the compensation a firm must pay when it gave unsuitable advice about a pension transfer. The aim is to put the consumer back in the financial position they would have been in if they had not followed the advice and had stayed in their defined benefit scheme.

Why did the FCA review its redress method for pension transfer advice?

The method in use in 2016 had been designed for the Pensions Review of the 1990s. The FCA was concerned that it no longer fairly reflected the value of the guaranteed benefits consumers had given up, which could leave them under-compensated. It published updated guidance in 2017 and has updated the method since.

What happens if I received unsuitable defined benefit pension transfer advice?

You may be entitled to redress. Complain to the firm that advised you first. If you are not happy with its response, or it has not replied within eight weeks, you can take your complaint to the Financial Ombudsman Service for free. If the firm has gone out of business, the Financial Services Compensation Scheme may be able to help.

What counts as unsuitable pension transfer advice?

Advice may be unsuitable if the adviser failed to properly assess your circumstances, your attitude to risk or the value of the benefits you were giving up, or recommended a transfer that was not in your best interests. Under the current rules, the adviser must carry out an appropriate pension transfer analysis, including a transfer value comparator, before recommending a transfer.

Who can help if I am worried about advice I received in the past?

Start by complaining to the firm that advised you; it costs nothing. If you are not satisfied, the Financial Ombudsman Service can look at your complaint for free. MoneyHelper offers free, impartial guidance, and the FSCS may help if the firm has failed. You do not need to pay a claims company to do this for you.

This article is general information, not financial advice.