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”.
She said: “We believe the committee’s recommendations are sensible. We are currently looking at the register to see how we can make it easier to use. We are also reviewing the rules that apply to firms advising on pension transfers, and will consider this report as part of this.”
Several financial advice firms have stopped providing DB transfer services in connection with the British Steel case after FCA’s intervention, with County Capital Wealth Management, also trading as Pension Review Service, being the latest to join the list.
At the end of last month, the FCA announced it will be collecting data from all financial advice firms which hold pension transfer permissions during this year.
In October, the FCA revealed that advice in more than half of the DB pension transfers where the recommendation was to move the retirement pot was unsuitable or unclear.
Mr Field also commented on The Pensions Regulator role in the process.
He said: “Once again we find TPR fiddling while Rome burns, when it should have seen this rip-off coming.
“Given a choice between two DB options worse that what they had been promised, with precious little support in making that choice, many steelworkers were drawn to the superficially attractive third option.”
“This is the first deal like this, but there will be more. All the responsible authorities must act, now, to stop more people being cheated. We will be asking all those involved to report back to us on the changes they will make, promptly, to stop this happening again.”
The committee is calling on the pensions watchdog to conduct a review of its practices, “listening to BSPS members and learning the lessons of how they were let down”.
MPs are also asking the regulator to “ensure all schemes in future are equipped to give members of full picture of the options they are choosing between”.
Thousands of steelworkers were forced to make a decision about their financial future without vital information, FTAdviser reported in October.
In response to the report, TPR said that it fulfilled its primary role by evaluating and approving a complex restructuring of the BSPS including obtaining £550m for the scheme. This was done through a regulated apportionment arrangement (RAA).
A TPR spokesperson said: “As part of this rare restructuring, which prevented the company becoming insolvent, a new pension scheme was offered to members as an alternative to entry to the PPF.
“We believe this was the best possible outcome for everyone involved in what was a very challenging situation, bringing greater certainty for thousands of scheme members.”
Regarding pension transfers, the watchdog said it “helped tackle unscrupulous financial advisers” by working closely with scheme trustees, the FCA and The Pensions Advisory Service (Tpas).
The TPR spokesperson added: “We note the committee’s recommendations and are continuing to work more closely with the FCA to protect pension savers.”
maria.espadinha@ft.com
