Update – FCA Guidance FG17/9 “Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers”
On 25 November 2020 there was a joint announcement from HM Treasury and the UK Statistics Authority “A Response to the Consultation on the Reform to Retail Prices Index (RPI) Methodology”. The result of the announcement is that the calculation of Retail Prices Index will change in 2030.
At Congruent we recognised that this was significant for inflation forecasts made in accordance with FCA Guidance FG17/9 “Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers”.
There are two different main inflation measures in use – the Retail Prices Index (“RPI”) and Consumer Prices Index (“CPI”) – and the announcement means that the relationship between these two measures will change.
The Financial Conduct Authority (“FCA”) guidance refers to the valuation of pension benefits that extend to the end of life of current and future pensioners which can extend well beyond 2030. In particular inflation forecasts are required and FCA prescribe a numerical relationship between RPI and CPI that will need to be revisited.
Accordingly, Congruent wrote to FCA to ask if they were going to revise their guidance (and pointing out that they did need to do so). When Congruent received an acknowledgement from FCA of Congruent’s submission, but did not provide specific confirmation that they would be taking action or when, Congruent started to warn its clients of this issue.
FCA has today (03 March 2021) said that it will amend the guidance in mid-March 2021. This will be backdated to 25 November 2020 and there will be a moratorium on concluding cases until the amendment has been announced.
Somewhat paradoxically, given that the reform is to the RPI methodology, the FCA change is likely to be limited to how CPI is to be forecast – but we have to wait and see.
Congruent has been doing work to revise Congruent CalculationsTM so we will be ready immediately when the FCA guidance is changed.
Please visit the FCA website for more information about the changes being made.
03 March 2021
