In a consultation paper published today on the consumer redress scheme for BSPS members (March 31), the Financial Conduct Authority said it expects £71.2mn to be paid in compensation to consumers.
It is expected that the scheme will apply to 343 firms, with advice firms forecasted to incur around £9.1mn in compliance costs to review their historical BSPS transfers.
Commenting on the paper, MP Nick Smith said it has been “like pulling teeth to get to this point” but welcomed the scheme by the FCA.
“I have been working with steelworkers and campaigners on this for four years now and I know the toll it has taken on so many,” he said.
“I have been pushing for a redress scheme because I believe this is the best way to put things right for the steelworkers that were targeted by pension sharks.”
Smith said he will be looking at the details of the scheme to see if further improvements are needed and will get a chance to speak with the regulators again at a public accounts committee hearing on April 27.
“This is a positive step forward in putting this injustice to bed. I still want to see those responsible for this scandal suitably punished, not just the rogue advisers but also their introducer accomplices.”
In addition, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said if implemented, these proposals will mean many more people who lost out after transferring out of the BSPS get the compensation they deserve.
“The consultation puts strong emphasis on the number of people yet to make any kind of compensation claim and puts processes in place so their case will be reviewed,” she said.
“Rather than the client having to approach the adviser with a complaint themselves, advisers will need to review affected cases and pay appropriate redress if their advice is found wanting.
“Firms are expected to identify and prioritise those who may be vulnerable or in need of fast access to redress. This will cover many people who either don’t know they have a claim or have yet to file one.”
In the consultation paper, the FCA said steelworkers generally supported the regulator’s proposals but raised concerns about firms "marking their own homework" by assessing their own advice.
They believe that firms will be incentivised to assess the advice as suitable, even if it is not.
Steelworkers wanted as many people as possible to be included in the scheme and raised concerns that, currently, people might be getting inconsistent outcomes or redress amounts.
In response to concerns that advisers are effectively ‘marking their own homework’, Morrissey said cases where the advice is deemed suitable will need to be checked by a senior individual so there will be safeguards in place.
“The British Steel case has damaged the retirement prospects of so many people,” she said “These proposals, if implemented, should help more people get justice.”
Difficult decision
Elsewhere, Matthew Connell, director of policy and public affairs for the Personal Finance Society, said British Steel employees had an “extremely difficult decision to make”, given that staying in their existing scheme was not one of the options they were offered.
“As a result, it is important that the review considers each case on its merits, and does not simply rely on generic assumptions,” he said.
“The fact this is only the second time the FCA has used its powers to launch a compensation scheme reflects the fact that the regulator has concluded too many British Steel workers were wrongly advised to give up a guaranteed income for life.
“They have noted that the amount of cash required to replicate guaranteed benefits is significant for any individual case.”
Connell described the circumstances around BSPS transfers as “exceptional”, stating that former members received significantly greater levels of unsuitable advice compared with other cases.
“Anyone considering transferring out of a defined benefit pension scheme should seek financial advice from a specialist and be aware they are most likely to be told to stay put,” he added.
“Nobody should ever feel rushed into making a complex decision that will impact their financial future. Never give up a guaranteed income for life without sufficient information about why such a move would be suitable for your individual circumstances.”
The BSPS case
During 2017, BSPS members were asked to make decisions about their pensions as part of a restructure of the scheme.
About 8,000 members transferred out of the scheme, with transfers collectively worth about £2.8bn.
But concerns about the suitability of the transfers were soon raised, leading to an intervention from the Financial Conduct Authority that resulted in a number of advice firms – key players in the debacle – stopping their transfer advice service, while others went out of business.
The debacle created a mountain of liabilities, which lawyers believe could end up costing the industry up to £300m.
In September, the FCA and FSCS travelled to Swansea to meet steelworkers who could be due compensation but were met with mixed feelings, with some showing no interest while others claimed they were unable to book a place.
The City watchdog also travelled to Swansea in November to meet steelworkers about bringing possible claims against their adviser.
Earlier this year, the FSCS said it had paid out more than £36.5m in compensation to BSPS members, as of January 25.
sonia.rach@ft.com
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