Many steelworkers were “shamelessly bamboozled” by financial advisers, with their pensions ending up in “unsuitable funds characterised by high investment risk, high management charges and punitive exit fees”.
This is one of the conclusions of the Work and Pensions Committee report into the British Steel Pension Scheme (BSPS), published today (15 February).
In the 40-page long document, MPs argued that there is “worrying evidence that BSPS members have, over the past year, been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called ‘introducers’”.
Around 130,000 steelworkers had to choose to move their defined benefit (DB) pension pots to a new plan being created, BSPS II, or stay in the current fund, which would be moved to the Pension Protection Fund (PPF), by 22 December.
Of the total members, 43,000 were deferred, which meant transferring out their pension was also 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.
Since March and until the beginning of February, the scheme has processed 2,600 pension transfers equating to a total value of £1.1bn, according to data revealed by the scheme trustees.
The committee heard of advice fees typically around 2 per cent of the transfer value - and that the receiving funds sometimes imposed high annual charges and ‘punitive’ exit penalties ranging from 5 per cent to as high as 10 per cent, the report said.
MPs have made several recommendations to the Financial Conduct Authority (FCA) in the report, after Labour MP Frank Field, chairman of the committee, considering the watchdog’s action in this case “grossly inadequate”.
The report is calling on the regulator to ban contingent charging, which the MPs consider to be “a key driver of poor advice”.
They are also suggesting that the FCA creates an “online register of advisers and their current status in providing advice that does not require ‘a degree and orienteering skills’ to use,” after steelworkers struggled to find a suitable adviser on it.
Finally, the regulator is asked not to drop the requirement on advisers to start from the presumption that a DB transfer is a bad idea for their client, as suggested in a consultation last year.
Mr Field said: “I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing ‘impartial’ advice on a decision like this.
“It is bad enough failing properly to enforce the rules there are, but when the rules are this weak…?
“Our financial services regulator has been rejigged and rebranded but I can’t see much evidence of it working better for the people it is meant to protect: individuals making life-changing financial decisions.”
An FCA spokesperson argued that the regulator agrees with the committee that DB transfers “are a very important issue”.