Financial advisers have been calling the Pension Protection Fund (PPF) asking for transfer value requests, even though the lifeboat members are not allowed to move their benefits.
In its written evidence to the hearing the Work and Pensions select committee will be conducting tomorrow (13 December) on the British Steel Pension Scheme (BSPS), the pensions lifeboat revealed that its “member services teams have in recent times received a number of transfer value requests from advisers purportedly on behalf of PPF members”.
“This is all the more startling since the law is very clear that PPF members cannot transfer out their compensation entitlement,” it added.
It said: “It may be that these are isolated examples of poor practice, albeit we note the results of the [Financial Conduct Authority] FCA’s own early research work into the suitability of transfer advice, and that the Personal Finance Society has recently stated that the ‘market warrants further scrutiny’.”
The PPF said it is also concerned with by the behaviour it has observed recently by some advisers in the pension transfers area.
It added: “We are worried that the default position for some advisers when advising a [defined benefit] DB scheme member seems to effectively be that the ‘risk is in staying put’, and that this attitude may be leading some members to make poor choices about their pension savings.”
A pension scheme enters the PPF if it is unable to pay at least PPF level benefits. The average scheme transferring to the PPF since 2005, when it was established, has only been sufficiently funded to pay members 60 per cent of their promised benefits.
Steelworkers have until 22 December to decide whether to move their DB pension pots to a new plan being created, BSPS II, or stay in the current fund, which will be moved to the PPF.
The failed scheme has about 130,000 members of which 43,000 are deferred, which means transferring out of their pension is an option for them.
FTAdviser reported in November that several steelworkers appeared to be transferring out their pensions after being lured by cheap deals by unregulated introducer firm Celtic Wealth Management & Financial Planning, which then referred the clients to advice firm Active Wealth.
The PPF said that members, when deciding to choose between the pensions lifeboat and other pension arrangements, “may be driven by ‘greed and fear’”.
It added that some advisers might be mischaracterising the protection the pensions lifeboat provides “to sow ‘fear’ among clients”.
It said: “In some cases, we have observed firms encouraging members to consider their options while casting doubt on the PPF’s own long-term financial viability.
“We are very aware of the risks we face, but we believe this to behaviour to be inappropriate and doesn’t accurately reflect our recent claims experience, nor our current financial health.”
The PPF said it has built a reserve of over £6bn and has assessed the probability of hitting its 2030 funding objective at 93 per cent.