The UK’s compensation scheme for investors has paid out an extra £1.5m this year to pension transfer victims following a revision of their cases but is facing a storm of complaints from those ineligible for uplifts.
In March, the Financial Services Compensation Scheme (FSCS) said it would be reviewing payouts made since January 1 this year, following a change in the method used to calculate redress.
The FSCS steps in to pay compensation of up to £85,000 to customers of companies which have failed and cannot settle complaints against them.
This week the FSCS revealed it had revisited 265 pension transfer mis-selling awards made since January 1 and made cash improvements in 126 cases. The mean uplift was £11,700.
In March the FSCS said the Financial Conduct Authority, which sets the redress formula, had confirmed there was “no need to revisit” claims that were settled before the start of this year.
This decision angered some pension transfer mis-selling victims, including former members of the British Steel Pension Scheme (BSPS) who had their compensation claims settled before January.
Michael Divetta, 46, a former BSPS member, complained to the FSCS after his £4,000 payout missed the January cut-off by weeks.
“If you’re lucky enough, you win the £85,000 jackpot,” said Divetta, who was misadvised in 2017 to transfer his guaranteed BSPS pension, valued at £395,000, to a riskier stock market- based plan.
“My claim happened to be settled in November 2020 and some colleagues had theirs settled in 2021. Many of them are now getting the maximum payouts after a review. A change in a system is now potentially leaving me financially vulnerable, all on a change of formula on a designated date plucked out of the bowl.”
Divetta’s complaint to the FSCS about the unfairness of the situation was dismissed. “I am now struggling physically and mentally with this discrepancy,” he said.
The FSCS declined to say how many complaints it received about eligibility terms for the review, on the grounds it may identify individuals.
However, Al Rush, an independent financial adviser and principal of Echelon Wealthcare, who has been campaigning for justice for BSPS members, said dozens of former steelworkers were lodging complaints.
“The rationale behind the redress guidance [is] that it should put the customer as far as possible into the position they would have been in if they had not transferred out,” said Rush.
“When compensation is little more than a lottery and can vary between steelworks and steelworker, by tens of thousands of pounds, you have to question the value of that redress process. The whole compensation system for the FSCS is a lottery, not just this revision process, and needs to be urgently reviewed.”
The FSCS said: “Our calculation methodology is not arbitrary or random; we follow the same prescribed procedure in line with FCA guidance.”
Around 7,700 members of the British Steel Pension Scheme (BSPS) transferred their gold-plated benefits from 2017 following the restructuring of the 40,000-member retirement plan, which was aimed at keeping the Tata steelworks afloat.
However, a subsequent sample review of advice given to former BSPS members by the FCA found transfer recommendations were suitable in only 21 per cent of cases.
The FCA said: “We changed the redress calculations because an update to the way inflation is calculated could otherwise have left consumers worse off. The date was set at January 1 2021 was because this was the first opportunity to implement the change after the government confirmed its reforms to the retail prices index.”
The FSCS began implementing the new, more generous terms, for all defined benefit pension transfer calculation claims from April 12 this year.