At Broadstone, we have offered expertise and support with many types of redress calculations for over 30 years.
This includes redress calculations where the complaint involves the sale of a Free-Standing Additional Voluntary Contributions policy (FSAVC) to the consumer instead of them of joining the Additional Voluntary Contribution scheme (AVC) offered by their employer as part of their pension arrangements.
What Are Employers’ AVC Schemes?
Employers that offered a final salary pension scheme also had to offer an AVC scheme on either a money purchase or defined benefit basis. Defined benefit AVC options were generally only available from public sector employers.
In-house money purchase AVC options were provided by an investment manager alongside the members’ final-salary scheme and tended to offer lower charges than on the ‘open market.’
In-house final salary options potentially enabled employees to secure additional guaranteed benefits, through converting the AVCs into pension within the DB scheme, at a lower cost than purchasing them on the open market.
The most common form of defined benefit AVC scheme was an Added Years arrangement whereby members could choose to pay an additional percentage of pensionable salary to purchase added years of service in the employer’s main pension scheme.
Over the years, this has increasingly been seen as having been a valuable benefit for the scheme members.
What are Free-Standing Additional Voluntary Contributions (FSAVCs)?
Free-Standing Additional Voluntary Contribution plans were introduced in 1988 to allow company pension scheme members to save extra money for their retirement without having to invest in their own scheme’s AVC arrangements, the only route open to them to that point.
They are separate from the company pension scheme and potentially offered more flexibility but often come with high charges when compared to charges for the employer’s AVC arrangements which reduces the value of the investment.
Where consumers have used FSAVCs, they have potentially lost out when compared to the alternative use of the in-house AVC scheme.
- Where the charges in the FSAVCs are higher than the in-house scheme, on a like-for-like investment basis, the consumer will have a poorer outcome.
- Where the value of the proceeds from the FSAVCs is lower than the additional pension they could have bought within their scheme for the same cost.
Using our extensive library of charges across all the major pension schemes and FSAVC providers, as well as the historic cost of purchasing additional years of pension in the public sector schemes, we can carry out any redress calculation required.
Charges Only Redress Calculations
Where the consumer is deemed to have been better advised to have contributed to the in-house AVC scheme on a money-purchase basis, we consider the charges incurred in the FSAVC compared to those that would have been incurred in the in-house AVC arrangement.
The accumulation of these additional charges is the loss assumed to have been incurred by the consumer. Our library of charges, which are often complex, means we can accurately assess the loss.
Added Years Redress Calculations
Where a consumer is deemed to have been better advised to have contributed to their in-house AVCs to purchase added years, we consider the additional added years that the consumer could have purchased compared to the proceeds of the FSAVC plan.
If the notional benefits are more valuable than the FSAVC plan proceeds, the consumer is assumed to have made a loss that requires redress.
Other types of FSAVC Redress Calculations
Charges Only and Added Years comprise the bulk of the FSAVC related redress calculations that we do at Broadstone. However, there are other, more obscure (and even more complex!) types of AVC arrangements and also variations which may apply to different types of members that require different treatment.
Consumers may also have been better advised to increase their contributions to their employer’s main scheme to enhance benefits (i.e. by contributing to a higher tier in a defined benefit scheme) or to receive increased matched employer contributions (i.e. by a higher level of contributions to a money purchase scheme to received increased matched employer contributions).
If you do come across such calculations, do get in touch with us and we can explain in more detail what is required and provide you with any support you may need.
How Can Broadstone Help?
The redress calculations for an FSAVC complaint will often require considerable amounts of historical AVC charges information along with specialist knowledge of historical (and sometimes complex) rules for added years or other subsidised AVC defined benefits. The ability to model and value the impact of higher charges and value defined benefits in line with regulatory guidance is also required.
Broadstone can cater for all types of FSAVC redress calculations. We have a wealth of experience in calculating redress and have a long history of supporting our clients in this area.
If you need help or guidance with any FSAVC related redress calculation, get in touch with us.
Broadstone – redress specialists for over 30 years.
