S404 Redress Scheme

FCA has announced a consultation on a redress scheme for former members of the British Steel Pension Scheme (“BSPS”) who were give unsuitable advice. The FCA believe the unsuitable advice was widespread and persistent thereby meeting the criteria for a S404 redress scheme.

This S404 redress scheme is designed so that consumers who have transferred from BSPS to a flexible pension arrangement will automatically have their case reviewed by the firm unless they decide they do not wish to (or a complaint was made previously). The FCA deem this is necessary as they believe (based on a sample) that 46% of the advice was unsuitable from a possible population of 4,000 which could result in an additional £56.1 MLN additional redress compared to not implementing the scheme.

As well as the direct cost in paying redress to the consumer it is estimated that the scheme will cost more than £14 MLN (compliance administrative costs for firms plus FOS referral fees). Firms are expected to pay consumers redress where the advice has been deemed to be not suitable – drawing on PI insurer cover as necessary. Where firms’ own resources and/or PI cover are insufficient to pay redress, the case should be passed to FSCS who are permitted to award up to a maximum of £85,000.

There are number of stages in the scheme:

· Screening. Not all customers will be eligible to have their case reviewed under the scene e.g. if they are outside the relevant period, those that have entered into a full and final settlement with the firm, submitted the complaint to the FOS, or customers that have had their case reviewed by a skilled person under a Past Business Review. There are also exclusions for so called “insistent clients” – those that were advised to stay in the original scheme but decided to transfer.

· Suitability assessment. The FCA have created an assessment tool which will assist the assessor in arriving at a decision on whether this advice was suitable. This is based on the Defined Benefit Advice Assessment Tool (“DBAAT”) but specifically tailored for BSPS. As well as a suitability test there is a causation check i.e. whether the advice was the cause of the consumer loss or not.

· Redress outcomes. This is based on the existing FG17/9 methodology – Guidance for firms on how to calculate redress for unsuitable defined pension transfers. However, this guidance is subject to a FCA consultation later this year. The FCA think that the average redress payable to a consumer is £60,000.

At each stage there is an option afforded to the consumer to refer the matter to the FOS if they are not happy with the decision.

The consultation remains open until 30 June 2022 (except for one question on redress calculations where they seek a response by 12 May 2022) and the FCA look to publish the final guidance by the end of 2022 with the scheme implementation shortly thereafter.