FT Adviser (29/11/2018) – Financial advisers are calling for more consistency between the discount rates used when giving advice on pension transfers and those used for calculating compensation for clients.
Since 2017 the Financial Services Compensation Scheme (FSCS) has been using a discount rate of 3.7 per cent, based on 50 per cent investment in equities, to calculate the compensation due to a claimant in a failed pension transfer case.
However, since October, financial advisers have been asked to use a transfer value comparator (TVC) for defined benefit (DB) transfers – which means they have had to calculate the cost of buying the client’s benefits on an open market using a risk-free rate of 1.6 per cent.
The difference between the two figures came to light last week in the plight of the British Steel workers who were asking the FSCS to use the 1.6 per cent rate instead of the 3.7 per cent currently being applied.
Ricky Chan, Director and Chartered Financial Planner at IFS Wealth and Pensions, said there needed to be more consistency applied to both calculations.
He said: “Otherwise, not only is it confusing, but it also leaves the possibility of anomalies being created where clients may be better or worse off, simply due to their circumstances and the past performance of equities at the date of their redress (due to the assumption of 50 per cent expected return on equities while consumers are at least five years away from retirement).”
Full article link: https://www.ftadviser.com/pensions/2018/11/29/advisers-call-for-fscs-discount-rate-change/
