FSCS yet to cover pension scheme buyout protection (amended)
UK - The UK's Financial Services Compensation Scheme (FSCS) has today stressed it has yet to be decided whether it would pay compensation to both members and trustees of pensions schemes where there has been a pensions buyout or buy-in, should the insurance company involved collapse.
The FSCS, dubbed as the UK retail financial services industry's "lifeboat scheme", today denied it had announced a consultation to scrap 100% compensation of the first £2,000, adding that it was the UK Financial Service Authority, FSA, which had launched an open consultation in October.
A spokeswoman told IPE there potentially could be changes to the rules early 2009, but it is too early to say when, or what specifically will happen.
Consulting actuaries Punter Southall has claimed today it had received confirmation from the FSCS suggesting it would cover pension buyouts and buy-ins, but further noted the FSA rulebook in theory means the FSCS can only recompense the first £2,000 of any loss and then 90% of the remainder of the claim.
The FSCS has now confirmed this is the case should a company be unable to secure continuity of cover by transferring the policies to another insurer for at least 90% of the pre-insolvency benefits.
Pension officials argue there has been a lack of clarity about the FSCS' responsibilities which led to much uncertainty surrounding compensation available to trustees, particularly following a so called buy-in, where the insurance policy is held as a scheme investment and the members' security continues to depend on the sponsoring employer covenant.
The FSCS has stressed it cannot confirm that trustees, following a buy-in, will get the same protection as would members following a buyout.
A FSCS spokeswoman said: "If the individual policies are with a UK authorised insurer there would be continuity of cover by transfering the policy from one insurer to another for at least 90% of the pre-insolvency benefits."
She added: "The FSA issued a consultancy document in October proposing the level of a 100% band, which would mean the compensation would be simply 90% of the value of the policy as valued in liquidation, there is no upper limit to compensation payments for long term insurance business."
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