FCA provides further clarification on BSPS redress plans

The Financial Conduct Authority (FCA) has provided further clarification around the proposed British Steel Pension Scheme (BSPS) redress scheme, confirming that it is exploring the possibility of a redress calculator.

In response to a letter from the Work and Pensions Committee (WPC), the FCA confirmed that it is currently reviewing the responses to its recent consultation, with plans to publish policy statement, including final rules, "later this year", if the scheme is implemented.

FCA executive director, consumer and competition, Sheldon Mills, also responded to the WPC's specific queries as to how the FCA will ensure firms calculate and pay redress in accordance with its guidance.

In his letter, Mills revealed that the FCA is "exploring the possibility of a redress calculator for the scheme", confirming that the regulator will also require firms to provide regular data to it.

This regular data, along with data and intelligence from FCA's regulatory partners, will then be used to supervise firms’ compliance with the scheme and their treatment of consumers using a proportionate and risk-based approach.

Mills also addressed queries as to how lump sum payments under the redress scheme will be adjusted to ensure someone on means-tested benefits is not disadvantaged, confirming that the proposal to pay redress into consumer’s defined contribution pension by augmentation is expected to reduce the scope for their entitlements to be affected.

However, industry experts have previously suggested that treating redress as an augmentation in the receiving DC scheme is not necessarily straightforward either, warning that this could trigger tax issues for some savers.

In his letter, Mills also emphasised that, where redress is paid by cash lump sum directly to the consumer because, for instance, augmentation is not possible, it remains the FCA's expectation that firms ensure consumers do not suffer a reduction in income.

Despite this, he acknowledged that the proposed rules and guidance on this point does not specify how cash lump sum redress payments should be adjusted to take account of means-tested benefit entitlements.

Mills suggested that compensation protection trusts (CPTs) could be used in these circumstances, although he confirmed that the regulator will continue to consider whether more specific guidance could be provided to firms on this matter.

More broadly, Mills also confirmed that customers of firms that have failed, and who may or may not have already submitted a claim to Financial Services Compensation Scheme (FSCS), will not be included in the scheme, including people who have already received compensation from the FSCS.

However, for any firms that go out of business after the scheme starts, where possible FSCS will proactively assess claims that are within the scope of the scheme, without the customers needing to make a claim.

FSCS will also calculate redress in line with the scheme rules and will pay compensation up to the relevant limit.

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