Pensions - Articles - Pension redress liabilities below 5 percent of transfer rate


First Actuarial’s new Redress Tracker reveals that a typical firm’s exposure to redress liabilities in relation to Defined Benefit transfer advice is now likely to be below 5% of the transfer value advised.

 With the tracker, First Actuarial is taking a new approach to calculating typical pension redress. Rather than basing redress movements on one theoretical individual, the new tracker reflects a diverse spread of notional individuals and pension schemes.

 Sarah Abraham, Head of Redress Services at First Actuarial, says: “There’s no such thing as a typical person. That’s why we’ve based our Redress Tracker on 80 notional individuals with varying characteristics such as age. We’ve also represented a range of scheme types, assumptions and methods of calculating transfer values. This modelling should prove particularly useful for firms that need to estimate their prospective redress liabilities across multiple cases.”

 Only four years ago, redress was typically around 40% of transfer value. First Actuarial’s tracker shows a considerable drop in the financial risk associated with defined benefit pension redress due to market changes, not least the falling price of annuities.

 Sarah Abraham says: “Firms may be assessing their redress risk on the basis of out-of-date information, or a ‘typical’ individual or scheme. By allowing for variation across diverse consumers, First Actuarial’s Redress Tracker gives a more realistic picture. In recent years, redress has become a rare outcome. And that’s exactly why our index is so important – an IFA with several pension transfer cases is likely to have some of those rare cases, which wouldn’t get picked up by data based on one individual.”

 Many firms are aware redress has been falling. First Actuarial’s Redress Tracker gives them a realistic understanding of the reserves they may need to hold for future redress, which is important for robust governance and risk management.

 Sarah concludes: “The Redress Tracker is giving firms a realistic estimate of redress at any one time. But it’s also essential to understand the risk of future movements in redress. Our Redress Tracker provides a valuable starting point. Firms can then commission bespoke training, modelling and qualitative analysis to get a robust understanding of their own portfolio of cases and how to deal with them.”
  

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