The Financial Ombudsman Service has recently ruled in my favor regarding the inadequate advice given by my financial adviser to withdraw my funds from the company pension scheme. Now, the financial service I utilized needs to calculate the compensation based on the formula provided by the FOS. However, they are requesting my product provider and policy numbers, which puzzles me. Am I legally obligated to provide this information? I thought they already had the necessary formula to determine the compensation, as provided by the FOS.
Since the introduction of pension freedom in April 2015, many individuals have chosen to transfer their pensions from traditional final salary schemes to more flexible defined contribution arrangements. While this has worked out well for some, others have received poor advice that wasn’t in their best interests.
If you believe you were poorly advised about a pension transfer, it is important to file a complaint with the financial adviser in question. In some cases, this may lead to a compensation offer. However, there have been instances where individuals have received inadequate compensation for the losses they suffered, even when the advisers acknowledged the unsuitability of their advice.
To address this issue, the Financial Conduct Authority (FCA) has established rules on how compensation should be calculated when unsuitable advice has been given. If you suspect you were given unsuitable advice, I recommend studying the FCA’s guidelines on defined benefit pension transfers redress calculations.
The purpose of compensation is to place you in the position you would have been in if you hadn’t transferred out of your final salary pension. As someone who successfully lodged a complaint with the Financial Ombudsman Service, your original financial adviser is now required to compensate you according to the FCA’s rules.
The calculation of compensation involves two stages. The first stage is determining the size of the pension pot needed today to replace the pension you gave up. This pension pot, if invested until retirement, should be able to purchase an annuity equivalent to your previous pension. The second stage involves comparing your current pension pot to the pot size needed. If your current pot is worth less than what is needed, you have lost out, and the compensation will be the difference between the two amounts.
To complete the calculation, your financial adviser needs to know the value of your current pension. They may also request your product and policy details to verify this information.
It’s worth noting that recent changes in annuity rates have reduced the amount of compensation people are receiving. Annuity rates determine the size of the pension pot required to match the final salary pension given up. Since annuity rates have increased, the difference between the required pot size and your current pot may be smaller than it would have been in the previous year. This may result in less compensation than expected, even though you were clearly given poor advice.
If you have any further questions about pensions, you can reach out to Steve Webb, our pensions expert, by emailing [email protected]. Please include a contact number, although this will be kept confidential and not used for marketing purposes. If Steve is unable to answer your question, you can contact MoneyHelper, a Government-backed organization that provides free assistance on pensions at 0800 011 3797.
Please note that nothing in Steve’s replies should be considered as regulated financial advice. Published questions may be edited for brevity or other reasons.
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