Compensation payments due to people who were wrongly advised to transfer out of their defined benefit (DB) pensions have fallen to record lows, according to a quarterly update from Broadstone.

Redress payments are intended to put the complainant “back in the financial position you would have been in had you remained in your DB pension scheme,” in the words of the Financial Conduct Authority (FCA).

Yet, according to Broadstone’s quarterly DB Redress Tracker, compensation due to those who have been ill-advised to transfer out of their DB pension is now at record lows.

The decline has been gaining momentum over recent years, thanks to changes in gilt yields.

Broadstone found that, through 2022, there was a notable decline in redress values as gilt yields rose.

More recently, according to Broadstone, the rate of decline in redress has slowed; the past two quarters have seen the decline flatten, but it has continued to “tick down”, the consultancy said. By contrast, in previous years covered by the report, redress values were relatively high during periods of lower gilt yields.

Redress is paid within a specified range, the scope of which depends on the size of the original transfer value and performance of investments in subsequent years.

According to Broadstone, thanks to positive investment returns, it is becoming more common for there to be no redress due at all.

The financial services consultancy uses the example of a person who transferred out of their scheme in 2018 aged 50, with a pension of £10,000 a year, plus inflation-linked increases when in payment, and calculates changes in line with FCA regulation.

Broadstone head of redress solutions, Brian Nimmo, said: “The landscape of DB pension transfers and redress has evolved significantly since 2018, primarily influenced by rising gilt yields.

"While many individuals still face losses requiring redress, there are also cases where no loss is experienced due to effective investment performance and the size of the original transfer value.”

Nimmo said the FCA’s consultation paper, CP23/24 could also add to the complexity of planning for advice firms.

“For financial advisers dealing with potential redress claims, it makes planning difficult, especially with the potential requirements of CP23/24 coming down the line. Getting expert advice in this area is going to be crucial for them,” he said.

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