04 December 2008
Following enquiries from consulting actuaries Punter Southall,
the Financial Services Compensation Scheme (FSCS) has finally
confirmed its responsibility for providing protection to pension
schemes that have been sold to insurance companies.
Whilst it had been hoped for by the pensions industry,
previously it had not been fully confirmed that in the event of an
insurance company collapsing that scheme trustees and scheme
members would definitely be protected by compensation from the
Financial Service Authorities lifeboat scheme, the FSCS.
In theory, the FSA rulebook broadly currently provides for
recompense of the first £2,000 of any loss and then 90% of
the remainder. The FSCS as yet though is both untested and unfunded
with only minimal amounts having been paid out as compensation.
The FSCS has now confirmed this is the case should they not be
able to secure continuity of cover by transferring the policies to
another insurer for at least 90% of the pre-insolvency
benefits.
Further to Punter Southall's enquiries, the FSCS has also
announced plans to begin a consultation on whether to scrap the
100% guarantee on the first £2,000 of each member's benefits,
in preference for a blanket 90% protection for all benefits. The
FSCS suggests that this is likely to be agreed and cites benefit
consistency and administration simplification as the reasons for
this change. The fall in coverage, should it come into force, will
be a reduction in the protection available.
