Investment - Articles - Gilt yield increases halve DB transfer compensation

 The Defined Benefit (DB) Redress Tracker from actuarial consultancy OAC (part of the Broadstone Group) shows the falling levels of compensation due to those who were previously ill-advised to transfer out of their DB pension as gilt yields continue to rise.

 The consequent sharp increase in annuity rates over the past 18 months mean that many transferors will now be projected to be able to secure a much higher level of guaranteed income from their remaining pension pot.

 This will minimise the financial disadvantage for those who are seeking compensation after being wrongly advised to transfer their pension, and therefore the compensation they are due.

 OAC’s Quarterly DB Redress Tracker follows the example of an individual who left their scheme in 2018 aged 50, with a pension of £10,000 p.a. which would receive inflation-linked increases when in payment. The Tracker is developed in line with Financial Conduct Authority (FCA) rules for calculating redress with the individual assumed to have invested their funds to earn returns in line with the FTSE Private Investor Index.

 It finds that a transferor making a compensation claim in Q1 2022 could have been entitled to over £165,000. This fell significantly to just over £50,000 as of Q2 2023 and in the three months since has more than halved again to around £22,000 (Q3 2023).
 
 Since 2018, redress has typically ranged between £100,000 and £150,000 as supressed annuity rates minimised the replacement income that transferors could have secured had they sought redress in the period to 2022.

 Brian Nimmo, Head of Redress Solutions at OAC, commented: “Our DB Redress tracker seeks to illustrate the levels of compensation available to those making a claim against poor advice when they transferred their pension.

 “It demonstrates how the rise in gilt yields has meant that those who did transfer their DB pension are now able to secure a healthy guaranteed income through the annuity market.

 “While this mitigates the potential financial damage from transferring a DB pension, it does mean that many could now be due significantly less compensation if they were to make a claim now.”