UK financial advice trade body Pimfa has called on the Financial Conduct Authority (FCA) to take an alternative route for paying compensation to British Steel Victims.
The FCA is currently working on a potential ad-hoc redress scheme for the members who suffered losses as a result of unsuitable financial advice.
But the industry association believes that past members of the British Steel Pensions Scheme (BSPS) should be given “the opportunity to be put back in the position they would have found themselves had they not transferred out”.
This would mean placing victims into the Pension Protection Fund (PPF) which would pay out the guaranteed income members had given up.
Under the Pimfa proposal, advice firms would still need to pay redress “by topping up an individual’s pension provision to a level which would be invested directly into the PPF to ensure they received guaranteed income for life”.
The trade body believes this plan might make redress quicker and more efficient, but it is also concerned that the FCA scheme could be taken advantage of by claim management companies.
‘Unequal’ solution
Simon Harrington, head of public affairs at Pimfa, said: “Given that the FCA considers the major driver of unsuitability to be an individual giving up their guaranteed income, it is our view that the fairest and most logical way to put the individual back in the position they would have found themselves in would be to replicate it.
“Current proposals to provide the individual with a cash lump sum, simply perpetuate the problem of BSPS members having a cash lump sum which, in the FCA’s view, is unequal to the value of the benefits derived from a DB income.
“We accept that such a proposal would have to take consideration of member withdrawals to date, as well as whether or not the top up would be to the original cash equivalent transfer value (CETV) or the CETV required to receive the same level of income from the PPF.
“But we do strongly believe that it is in keeping with the broad principle of putting these consumers back in the position they would have found themselves in.”
Harrington added, however, that the trade body is concerned financial advice firms will not be able to withstand a high number of claims and does not believe it is reasonable to expect them to draw on capital reserves to cover them, regardless of private indemnity cover.
“The risk of firms subject to multiple claims to default is an acute risk. It follows logically that this is in turn will lead to further pressure on Financial Services Compensation Scheme (FSCS) levies for other firms as well as inevitably leading to further centralisation in the market.”
