FCA Announcement on Retail Prices Index changes and DB pension transfer redress
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UPDATE: on the 10th March, the FCA announced the change would only likely apply to calculations carried out from the 1st January 2021.
On the 3rd March, the FCA announced a forthcoming change that affects redress calculations.
In mid-March the FCA will amend its finalised guidance for firms on how to calculate redress for unsuitable DB transfers to reflect the Government’s changes to the way the RPI inflation measure will be calculated from 2030.
What is the CPI change?
“From February 2030 the -1% adjustment to the RPI assumption used in the guidance to calculate the CPI assumption will not reflect the assumed difference between the RPI and the CPI. It will be too large and some consumers may not receive the correct amount of redress.
“This will affect consumers who transfer out of DB pensions that are uprated annually in line with the CPI. We will therefore update the CPI adjustment in the guidance to ensure that these consumers continue to receive appropriate redress.”
Most schemes have benefits which escalate payment in line with CPI. Many also revalue benefits in deferment in line with CPI, so the scope of this change is wide-reaching. We have interpreted the announcement to cover pension transfers, opt-outs and non-joiners and FSAVC redress calculations but have sought clarification from the FCA that this is correct.
What do you need to do?
Once the FCA has issued its full guidance you’ll need to revisit calculations issued since 1st January 2021 where you believe the calculation has unduly disadvantaged it.
Advise customers currently being redressed there may be a delay while you wait for final guidance from the FCA.
Consider forward-planning how you will revisit these additional calculations now.
How we can help
We can reduce the burden of these extra calculations. Our actuarial and redress team has extensive experience calculating DB pension redress and turning them around at short-notice.
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