The Financial Conduct Authority is to consider whether to increase compensation limits for certain pension claims.
In a feedback statement to its compensation review, published today (December 14), the FCA said several respondents called on the regulator to review current limits for claims about pension products.
The discussion paper last year considered the limits on compensation payable by the Financial Services Compensation Scheme and wanted to explore whether stakeholders considered whether current compensation limits provided appropriate protection.
The current limit is £85,000 for most types of claim covered by the FCA’s rules.
The City watchdog also asked whether it may be appropriate to introduce a periodic review of compensation limits, to ensure that the limits remain at an appropriate level over time.
But, in its feedback, respondents who commented on the appropriate level of compensation payable by the FSCS were roughly split evenly between those who considered limits should be increased and those who felt they should be maintained.
Few respondents suggested that limits should be reduced, the FCA said.
Instead, some respondents highlighted that a material proportion of pension claims dealt with by the FSCS are not compensated in full, and stressed the importance of pension savings for consumers’ financial wellbeing.
From those who called for an increase in limits for claims about pensions, there were mixed views on how much they should go up by, with some respondents suggesting that pensions-related claims should be compensated in full with no limit.
Others argued that a separate limit for pension claims should be introduced that covers the majority of claims, matches the Financial Ombudsman Service maximum award limit (currently £375,000) or matches the lifetime pensions allowance (currently £1.073mn).
The FCA said: “While we consider that the current compensation limits are set at a reasonable level for most types of claim, we believe that it is appropriate to consider further the protection available for claims about pensions.”
The FCA said its analysis of FSCS data found that in 2021, 30.1 per cent of pension claims exceeded the compensation limit, compared with 6.2 per cent of overall investment intermediation claims falling to the life distribution and investment intermediation funding class.
Between 2019 and 2021, the number of pension intermediation claims where the value of the claim exceeded the compensation limit increased from 1,477 to 2,461 – pointing to a growing number of customers who were not compensated in full.
The FCA said its work on advice to transfer out of defined benefit pension schemes – particularly in the context of the consumer redress scheme for unsuitable advice to transfer out of the British Steel Pension Scheme – highlights the significant impact that bad pensions advice can have on consumers’ wellbeing.
“We have seen some cases where individual’s losses total several hundred thousand pounds, meaning that, if the advising firm responsible for the bad advice goes out of business, the impacted consumer would not be able to recover all their losses from the FSCS,” it said.
