The FCA has found that out of a sample of 162,000 people that transferred out of defined-benefit pensions, 29% were unsuitable and another 23% of cases were unclear, opening the door for an influx of misselling claims within the financial services industry. In particular, it was noted this sample transferred out of defined-benefit / final-salary pensions in the UK between April 2015 and September 2018.
Several analysts have warned that the bill for these new claims could be in excess of £1.8 billion and even firms with strong processes are likely to be affected, due to the design of the UK Financial Services Compensation Scheme (FSCS).
Designed to compensate victims of financial fraud and missellings, the FSCS’s operational expenses and the costs of its compensation are both funded via a levy on UK financial companies, with the total expense having grown at a three-year compound annual rate of 15%. Last year, this cost UK financial services firms a total of £516 million.
In principle, the compensation should be paid by the advisors that provided the unsuitable advice, but it was noted that in practice few small advisor firms have the resources required to meet substantial findings against them – which will likely cause a large proportion of the compensation expenses to fall on the FSCS.
It is also interesting to note, that while savings and investment compensation is capped at £85,000, compensation for pensions and insurance products is unlimited.
Oliver Haill – Monday 11th May 2020.