Pensions review phase 2: Possible amendment to regulatory guidance

Detail

The regulators have become aware that an aspect of the PIA guidance on loss calculations for transfers may result in the material mis-statement of loss for a significant number of phase 2 transfers. Research conducted for the FSA and PIA by PricewaterhouseCoopers suggests that up to 35% of phase 2 transfers fall into categories where mis-statement can arise; and that the mis-statement may currently be material for 15-20% of phase 2 transfers.

For the majority of affected cases, a change to the guidance would lead to an increase in estimated loss and if the associated advice was also non-compliant and caused the loss to an increase in redress payable. The impact on the amount of redress payable by individual firms would be variable.

Next steps

Two steps are being taken immediately:

First, in order to gather views on the research so far conducted and on the most practical way forward, the regulators have prepared a detailed technical paper for relevant trade associations and for actuarial experts. Following receipt of their views, the current intention is to publish any new guidance found to be necessary on 1 February 2000.

Second, an edition of the FSA Pensions Review Bulletin published today advises reviewing firms to stop work on loss calculations for relevant categories of case pending resolution of the position.

Notes for editors

1. In 1994/95 the Financial Services regulators set out a programme of review by authorised firms of personal pensions sold between April 1988 and June 1994. The review was to identify cases where people were badly advised to opt out of, not join, and/or transfer funds from an occupational pension scheme to a personal pension. The review announced in 1994 required firms to review proactively certain categories of investors most at risk from having lost out from bad advice the priority cases. In August 1998, the regulators announced a further stage of the review phase 2. Phase 2 covers younger investors and those not in the priority categories.

2. Firms accounting for at least 95% of phase 2 cases are regulated by the PIA and therefore use PIA guidance.

3. Firms responsible for phase 2 reviews report that the phase 2 population of transfers for review is over half a million. At this stage in phase 2, it is not possible to determine how many of these cases will reach the loss assessment stage this will depend on the number excluded and the number found to be associated with compliant advice.

4. The PIA published its guidance on loss calculations for transfers in July 1995, following public consultation. The guidance reflects that published in 1994 by the then SIB, but contains greater technical detail.

5. The FSA estimated in February 1998 that the cost of redress for phase 2 (including administration costs) was likely to be in the range 3.8bn - 6.5bn. This was in addition to an estimated cost for the priority review of 4bn in redress and 0.5bn in administration costs.

6. Firms should continue with loss assessment calculations for transfers unaffected by this announcement, and for all opt outs and non-joiners.

7. This announcement does not require any action on the part of investors. Investors that have concerns can call the FSAs helpline on 0845 606 1234.