The Financial Services Compensation Scheme (FSCS) is considering making changes to the way it is calculating the compensation for former members of the British Steel Pension Scheme (BSPS).
If the changes proposed today (November 22) at a meeting in Parliament are taken on board, the steelworkers are set to receive the maximum compensation awarded by the scheme, of £50,000.
Mark Neale, chief executive of the FSCS, said the body will consider some of the issues raised during the meeting and revert back with their decision in a week.
Philippa Hann, solicitor at Clarke Willmott, and Alastair Rush, principal at Rutland-based Echelon Wealthcare, who were representing the steelworkers advised by Active Wealth, made a case for three changes to be made in the compensation being given to these individuals.
They asked the FSCS to use today's market value of the investments, due to recent market downturns.
They argued the compensation should also consider the cost of advice, to the tune of 0.75 per cent per year, since this is now an ongoing commitment for those that were poorly advised to transfer out.
Thirdly, the FSCS was told that the discount rate they are using to calculate redress – of 3.7 per cent - is too high since it assumes 50 per cent equity content when the BSPS was risk free.
Alistair Cunningham, chartered financial planner at Wingate Financial Planning, who was also present at the meeting, said: "The reason for the poor advice was in moving from a risk-free scheme to a risky one, and they [steelworkers] should never have taken any risk."
It was argued at the meeting that since new rules were introduced by the Financial Conduct Authority (FCA) in October, financial advisers have to use a transfer value comparator (TVC) when advising on pension transfers, which uses a risk-free rate of 1.6 per cent, to be able to make a true comparison between investments.
Mr Cunningham said: "The TVC has added an anomaly in cases like these where the FCA expect advisers to do the analysis using a risk-free rate, but to offer redress with 50 per cent equities."
The last two points have a greater impact for younger steelworkers, due to compounding factors, he noted.
Mr Cunningham added if the changes in compensation are introduced, it would represent an increase of 20 to 30 per cent to the amount being given to the former BSPS members, which would then be capped by the maximum amount given by the FSCS, of £50,000.
The FSCS's Mr Neale said: "We have huge sympathy with the members of BSPS, who have been very badly let down by the advice they received from Active Wealth, we are in the process of compensating members of the scheme.
"We absolutely want to ensure that compensation is fair."
Active Wealth entered into liquidation in February after the firm was told to cease any pension transfer activity by the FCA months earlier.
It was one of 10 firms which stopped giving transfer advice after they were identified as key players advising members of the BSPS to transfer out of their defined benefit (DB) pensions.