For example, as can be seen from OAC's BSPS redress tracker, the impact of the change to the guidance issued in March 2021 resulted in a substantial increase to redress.
This trend may be disrupted by hesitation from the FCA about increasing the impact of the BSPS redress scheme on the various affected parties.
Filling the guidance gaps
The third question is how much more prescriptive the guidance may become.
There are holes in FG17/9, especially where the consumer has already reached retirement age.
The level of interest generated by BSPS has drawn attention to those holes and to the scope for inconsistency in the approach taken by different companies to calculate redress.
Being more directive on methodology has benefits, but it also closes down the possibility for the specific circumstances of an individual to be reflected.
Policy Statement PS22/4
Running alongside the proposed consumer redress scheme is policy statement PS22/4, issued on 25 April.
PS22/4 sets out temporary asset restriction rules for companies that advised BSPS transfers.
The FCA has for some time flagged the importance of having adequate financial reserves for redress payments, particularly where there is limited PI insurance cover.
However, assessing this adequacy is easier said than done – particularly because there are many moving parts in a redress calculation, and getting a handle on what a suitable reserve might be is tricky.
The FCA has therefore analysed data obtained from ongoing companies and the FSCS about the potential size of redress in relation to BSPS transfers.
Its findings are outlined in CP22/6 and incorporated into PS22/4 – with the specified methodology for assessing a suitable reserve for possible BSPS redress allowing for a 46 per cent likelihood that the advice provided was unsuitable and for a redress payment equal to 16 per cent of the aggregate transfer value effected by the company.
Allowance can be made for existing PI cover in the calculation.
While it is certainly a start to have a rule of thumb for the magnitude of redress, we would advise caution when applying the 16 per cent.
For a start, our experience of BSPS redress calculations suggests redress can be significantly above the level suggested by the FCA’s analysis.
In particular, our analysis shows that for those who transferred out before March 2017, redress could be 50 per cent or 60 per cent of the transfer value effected.
Furthermore, we believe there is a danger the redress allowance determined for BSPS transfers is misinterpreted as a reasonable guide for redress on non-BSPS cases.
BSPS has some very specific features that keep its redress payments relatively low – the benefit restructure arising on the conversion to the New British Steel Pension Scheme – and the dramatic derisking of the investment strategy, which resulted in a review of the transfer value basis in March 2017.
