The regulator will consult on any further changes it plans to make after the review.

As part of its preparations for the review, the FCA said it has identified some areas where “firms may also benefit from clarification on how we currently expect redress to be calculated” when following the guidance.

When the FCA published its finalised guidance in 2017 it committed to review the guidance at least every four years.

The guidance is used by firms to calculate appropriate redress to put consumers back in the position they would have been in if they had remained in their DB scheme when it is deemed that they received advice from a firm which was negligent or contravened relevant requirements and if the advice was not given the consumer would not have transferred all or part of the cash value of accrued benefits from the DB pension scheme into the personal pension scheme.

Redress should enable consumers to cover the cost of ongoing product charges and regular adviser charges up to normal retirement age, both on the transferred pension and the amount of redress.

For prospective loss cases:

• The redress amount should allow for personal pension charges, where known, up to a maximum of 0.75% per year and allow for regular adviser charges on top of this.
• The pre-retirement discount rate should be netted down to allow for ongoing product charges and regular adviser charges in percentage terms up to normal retirement age.
• Regular adviser charges should be assumed to continue in full, at the current level.
• Where firms use any other method to take account of future product and ongoing adviser charges, for example for non-percentage-based charges, they should satisfy themselves that the result achieves the same intent.

For actual loss cases, the personal pension value used for the redress calculation should take account of any adviser charges that were incurred when the pension moved into decumulation at retirement.

Where redress is paid in the form of a lump sum, it should be adjusted to take account of the consumer’s individual tax position and wider circumstances.

The regulator added that firms should allow for ongoing adviser charges in redress calculations, including where another firm is giving ongoing advice.

The guidance is based on the approach for the Pensions Review of the 1990s, with the assumptions updated periodically since. The assumptions were last updated when the regulator published FG17/9 in 2017, to take account of changes in the pensions environment.

The FCA launched a defined benefit advice assessment tool in January to help Financial Planners to assess whether DB transfer recommendations they gave before October 2020 were suitable. However, the tool does not currently incorporate the new rules which came into force in October 2020.