Improved life expectancy of the phase two pensions review population has prompted the Financial Serv...
Improved life expectancy of the phase two pensions review population has prompted the Financial Services Authority (FSA) to adjust the calculations used to determine loss and redress.
The rates of return and the mortality decrements which should be used for calculating actual and prospective loss and redress for pension transfers and opt outs should now assume mortality in line with the standard mortality table PA(90) rated down three years.
Changes to the authority's guidance were decided following advice from the FSA's independent actuarial advisers that the original mortality decrements would not be appropriate for phase two of the pensions review.
For phase two the FSA has also launched an alternative compliance test designed to assess whether suitable advice was given to people transferring their pension from a previous employer to a personal pension during the late 1980s and early 1990s.
The test will cover phase two transfer cases that include people with more than 15 years left before retirement age and who were sold personal pensions between 29 April 1988 and 30 June 1994.
Those closer to retirement were dealt with during the phase one assessments between 1994 and the end of 1998. Around 98%-99% of the phase one cases have been completed. The FSA has set the target time form completion of the phase two review for 30 June 2002.
The optional compliance test (OCT) is a refined version of the standard compliance test used during phase one.
It was developed after consultation with the financial services industry in 1998 and offers a streamlined test as well as greater information to help investors reconstruct the circumstances surrounding their decision to transfer money.
The test contains three parts starting with an assessment on whether the transfer was the best financial option for the investor in light of the investment conditions at the time.
If the transfer is found to not be financially viable at the time then a check of the investor's file, held by the firm, must be made to see if there was any demonstrable failure of compliance. The third part of the test involves a review of the answers given by the investor to a standard questionnaire.
For a transfer to be compliant it must be demonstrated that the adviser knew the customer and their suitability for products, gave adequate information, explained the risk and there was no misleading literature, projections or statements made.
The draft form of the OCT was published earlier this year along with the new material for investors and were revised after consumer research.
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