The FCA pushed to use PPF in BSPS compensation

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The Personal Investment Management & Financial Advice Association (PIMFA) has said that members wrongly advised to opt out of the British Steel Pension Scheme should be transferred to the Pension Protection Fund (PPF).

In its response to the Financial Conduct Authority (FCA) consultation on a potential £71.2m compensation scheme

This would require former members of the BSPS to be included in the Pension Protection Fund (PPF), which would pay out the guaranteed income that those former members had waived, in line with similar proposals recently made by the Personal Finance Society .

However, consulting firms would still have to compensate by topping up a person’s pension accrual to a level that would be invested directly in the PPF to ensure they received a guaranteed income for life.

PIMFA head of public affairs Simon Harrington suggested it was the “fairest and most logical way” to put individuals back in the position they would have been, particularly given that the FCA believes is that the main reason for the inappropriateness of an individual donation is to increase their guaranteed income.

In contrast, Harrington argued that the current proposals to provide a cash allowance “simply perpetuate the problem of BSPS members having a cash allowance which, in the FCA’s view, does not reflect the value of the benefits arising from a defined benefit income”.

“We accept that such a proposal would have to take into account members’ previous departures and whether the top-up would be at the original cash equivalent transfer value (CETV) or the CETV required to maintain the same level of income from the PPF,” continued he continued.

“But we strongly believe that this is in line with the general principle of putting those consumers back in the position they would have found themselves in.”

In addition, PIMFA raised concerns about the influence of Claims Management Companies (CMC), which encourage large numbers of people to make claims against consulting firms, even when those clients think they have achieved a good outcome.

In particular, given the high profile of the program, the association warned that CMCs could potentially take advantage of cases where clients are referred to the Financial Ombudsman Service (FOS), which is likely to contribute to an increased number of claims, adding to an already slow process speed leading to more uncertainty will contribute.

PIMFA also indicated that this could mean that the overall cost of the redress system for companies is likely to be significantly higher than the FCA outlined in its cost-benefit analysis.

This in turn has raised concerns about how realistic it is for the FCA to expect providers of professional indemnity (PII) insurance to cover claims at the level set by the regulator.

Indeed, the PIMFA found that there have already been instances where providers have withdrawn insurance coverage against claims for damages, also suggesting that re-insurance purchased prior to the implementation of the redress system in the event of potential claims would have specific BSPS carve -Outs may include.

Noting the high profile of the scheme, it also suggested that the FCA should consider an opt-in process more beneficial as those most deserving of compensation would be processed more quickly and made amends in a more efficient manner.

Harrington added: “We are extremely concerned about the ability of companies to withstand a high volume of claims and do not believe it is reasonable to expect companies that are subject to multiple claims to have capital reserves to fall back on to cover them, whether or not they have adequate PII. These companies will fail.

“The risk that companies are exposed to several payment defaults is an acute risk. Logically, this will in turn put further pressure on the Financial Services Compensation Scheme levies on other companies and inevitably lead to further centralization of the market.”

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