A typical firm’s exposure to redress liabilities in relation to defined benefit (DB) pension transfer advice is now likely to be below 5 per cent of the transfer value advised, First Actuarial’s new Redress Tracker has found.

The tracker revealed a “considerable” drop in the financial risk associated with DB pension redress due to market changes, not least the falling price of annuities, as only four years ago, redress was typically around 40 per cent of transfer value.

The tracker, which launched this month, is designed to take a new approach to calculating typical pension redress, as rather than basing redress movements on one theoretical individual, the new tracker reflects a diverse spread of notional individuals and pension schemes.

Whilst First Actuarial acknowledged that many firms are aware redress has been falling, it suggested that the new tracker provides a realistic understanding of the reserves they may need to hold for future redress, which is important for robust governance and risk management.

Commenting on the tracker, First Actuarial head of redress services, Sarah Abraham, said: "This modelling should prove particularly useful for firms that need to estimate their prospective redress liabilities across multiple cases.”

“Firms may be assessing their redress risk on the basis of out-of-date information, or a ‘typical’ individual or scheme. By allowing for variation across diverse consumers, First Actuarial’s Redress Tracker gives a more realistic picture.

"In recent years, redress has become a rare outcome. And that’s exactly why our index is so important – an IFA with several pension transfer cases is likely to have some of those rare cases, which wouldn’t get picked up by data based on one individual.”

"The Redress Tracker is giving firms a realistic estimate of redress at any one time. But it’s also essential to understand the risk of future movements in redress.

"Our Redress Tracker provides a valuable starting point. Firms can then commission bespoke training, modelling and qualitative analysis to get a robust understanding of their own portfolio of cases and how to deal with them.”

Abraham also explained further detail as to how the tracker is calculated, using a range of scheme types and assumptions.

“There’s no such thing as a typical person," she stated. "That’s why we’ve based our Redress Tracker on 80 notional individuals with varying characteristics such as age. We’ve also represented a range of scheme types, assumptions and methods of calculating transfer values."

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