Defined BenefitJan 22 2019

British Steel review calls for adviser lists

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British Steel review calls for adviser lists

Pension scheme trustees should compile a list of recommended advisers for pension transfers, the independent review of the British Steel Pension Scheme (BSPS) scandal has found. 

The review, conducted by ex-Money Advice Service chief and Pension SuperFund trustee Caroline Rookes, suggested The Pension Regulator (TPR) explored the idea of trustees or trade unions having a panel of financial advice firms that members can choose from for their transfers.

Within the 41-page review, Ms Rookes said: "Members had been unable to find out what the PPF would mean for them and, in the absence of information, feared the worst.

"It was at this point – and before the Time to Choose exercise formally started – that a firm of unscrupulous advisers working with introducers started to collect customers from the financially naive and concerned steel workers." 

About 8,000 of the 44,000 members who were entitled to a pension transfer, had transferred out of the British Steel Pension Scheme by October last year, collectively worth about £2.8bn.

It emerged in October that one of the advice firms involved, Active Wealth, had amassed claims worth £531,000 from the Financial Services Compensation Scheme (FSCS) after it went bust.

Members of the British Steel Pension Scheme were asked to decide by December 2017 whether to move their defined benefit pension pots to a new plan, BSPS II, or stay in the existing fund, which was to be moved to the Pension Protection Fund, as part of a restructuring of pension liabilities.

The scheme had about 130,000 members of which 44,000 were deferred, which meant they had the option of transferring out.

For members whose transfer values were worth more than £30,000, there was a statutory requirement to obtain financial advice from an FCA-authorised adviser who is qualified to advise on transfers.

In November that year it emerged several steelworkers appeared to be transferring out after being lured by cheap deals offered by unregulated introducer firm Celtic Wealth Management & Financial Planning, which then referred the clients to advice firm Active Wealth, which is now in liquidation.

Much of this money went into funds deemed ‘risky’ and with high management fees. 

Work done by the FCA on a sample of BSPS members showed in nearly half of cases, the advice was unsuitable or it was unclear whether the advice was suitable or not.

As a result of regulatory intervention ten advice firms voluntarily stopped giving transfer advice after they were identified as the key players advising members of the scheme to transfer out.

Some have since defaulted whereas others regained their right to advise on pension transfers.

The independent review was initiated by TPR to establish whether lessons could be learned from the restructure of the BSPS, how the process can be improved for future schemes faced with a similar situation and to minimise the difficulties and distress suffered by some members.

Ms Rookes said the process needed to be made easier for people who seek financial advice on a pension transfer.

She said: "Members were very unsure about who or where to go to, hence the reliance on word of mouth and the susceptibility to introducers.

"Letters could have been developed (and tested) in advance to send to those requesting a transfer, alerting them to the risks and telling them where to get help.

"It would have been helpful if the trustees had compiled a list of advisers willing and able to take on pensions transfer advice for the BSPS members.

"Instead, members were referred to Unbiased or the FCA website. The former is not unbiased and the latter is not easy to use, nor does it make clear if the particular firm of advisers deal with DB transfers.

"It also includes advisers under investigation. The trade unions would have liked to recommend specific advisers but were advised that they would be crossing the line into advice."

Royal London’s director of policy Steve Webb, a former pensions minister, said BSPS members were "right to feel let down".

Mr Webb said: "The trustees of the pension scheme failed to make sure that workers had access to high quality impartial advice when making decisions about their pensions. And regulators were slow to act when it became clear that things were going wrong. 

"Workers had a right to expect that people who understand the complexities of pensions would have used their expertise to help them make the right decisions, yet those who were in a position to act let them down."

Jon Greer, head of retirement policy at Quilter, said: "Hindsight is twenty-twenty as the saying goes. Indeed the recommendations from the Rookes review on the handling of the British Steel Pension Scheme are so sensible, such as trustees providing a panel of trusted advisers and having clear and effective communication, that it is somewhat worrying that they weren’t implemented at the time.

"However, the possibility of a deluge of requests coupled with unregulated individuals targeting vulnerable people probably did not cross the minds of the well intentioned trustees at the time as they were navigating in unchartered territory. 

"What is important is to take the lessons from the scenario and ensure these common sense solutions are implemented. It might not be long until there is another deluge of employees considering [their] pension rights."

Among the recommendations for regulators, Ms Rookes suggested that TPR and the DWP discussed whether there was scope for legislation to "simplify the choices in the event of a restructuring".

She also recommended TPR and the FCA explored a new power for TPR to consider the preparedness of a scheme to handle the member consultation exercise in the event of a restructuring and if necessary seek to delay or stop the member consultation.

Lesley Titcomb, chief executive of TPR, said: "We are grateful to Caroline Rookes for identifying a number of useful themes in her review which will help ensure pension savers are less likely to make transfer choices which are not in their best interests.

"We will now work together with trustees and the government so that we can all address the review’s recommendations.

"By working closely with the FCA, TPAS and now the Single Financial Guidance Body, we are determined to help minimise a repeat of the difficult circumstances in which some members of the British Steel Pension Scheme have found themselves."

Megan Butler, executive director of supervision – wholesale, investment and specialist at FCA said: "The FCA stands by the action it took in those challenging times but, as with every case where we have had to intervene, there are always important lessons to be learnt.

"The FCA remains firmly committed to working with TPR and the Single Financial Guidance Body – and other organisations – to ensure we are all working together to continue to protect pension savers and take on board the lessons from British Steel."