The total cost of compensating people who ill-advisedly transferred their retirement savings out of an employer's pension is expected to run into hundreds of millions of pounds. Independent financial advisers (IFAs) are usually small firms and many lack the resources to meet potential claims.
The Personal Investment Authority, the new body that is expected to assume its powers within two months, yesterday set out how it intends to tackle this problem. It has been forced to isolate the pension transfer issue from the main Investors Compensation Scheme.
The PIA wants life insurers who receive business from financial advisers to agree that beyond a yet- to-be decided threshold they will bear any compensation costs that cannot be met by IFAs themselves. The PIA said if voluntary arrangements did not emerge, it would prescribe the method in which the cost burden would be shared.
The regulator's aim will be to ensure that the compensation available for pension transfers provides 'the same level of investor protection as in other cases of default'. The ICS provides compensation of up to pounds 48,000.
Many life insurers have said they do not consider themselves liable for problems caused by pension transfers arranged by IFAs.
It is envisaged that compensation will, in the first instance, be payable by the IFA that arranged the transfer. If the firm defaults, the cost will fall on other IFAs and then, anything after the threshold on the life insurers.
The threshold seems unlikely to be set very high.Reuse content