Steelworkers who stuck with their pension scheme have expressed anger at the proposal to take some of their retirement savings pot to pay for bad advice given to some of their co-workers to transfer out.
Last month Alastair Rush, principal at Rutland-based IFA Echelon, met with the FCA and proposed the new British Steel pension fund share the cash injection it received from Tata Steel Group with mis-advised steelworkers, who are worse off for being told to transfer out of the old scheme.
In August 2017, The Pensions Regulator approved the British Steel Pension Scheme restructuring, which was done through a regulated apportionment arrangement.
In this case, the British Steel Pension Scheme received £550m from the parent Tata Steel Group, significantly more than it would receive in insolvency, and a 33 per cent equity stake in Tata Steel UK.
Mr Rush, who created Operation Chive - Counselling, Help, Information, Volunteer Exchange – to provide free counselling to steelworkers, is suggesting that a pro-rata element of the £550m and equity stake in Tata Steel UK should be used to help mis-advised steelworkers who transferred out of the old scheme.
Stefan Zaitschenko, a former Tata Steel worker who helps run a Facebook group for members of the old scheme with 5,100 participants, told FTAdviser that members of the BSPS II, the new pension scheme, have been very vocal against the proposal.
One of the steelworkers, who wished to remain anonymous, said: "This is the most ridiculous idea ever thought of, a pension scheme compensating people who have transferred out and now have nothing to do with the BSPS II.
"I have already taken hits on pre-1997 increases as well as retail price index to consumer price index reductions, so why should the security of my pension be put in jeopardy for those who couldn't wait to transfer out but have now been ripped off by unscrupulous IFAs?
"The financial industry should compensate the people for their losses not pensioners of the BSPS II."
Mr Zaitschenko argued members who transferred out already received their share of the cash injection.
Prior to the regulated apportionment arrangement, cash equivalent transfer values had an 8 per cent reduction applied, since the assets from British Steel Pension Scheme could only meet 92 per cent of future liabilities.
After the agreement was announced, in August 2017, the trustees of the old scheme halted transfers so they could update the funding calculations, and the underfunding reduction went down to 5 per cent.
"The impact of a reduced underfunding reduction would be to increase the transfer value," the trustees of the scheme stated at the time.
Mr Zaitschenko will be writing to The Pensions Regulator, the Financial Conduct Authority and the trustees of BSPS II about this matter.
Mr Rush declined to comment.
David Brookes, technical director at employee benefits consultancy Broadstone, argued Mr Rush's proposal is unfair on the remaining members' benefit security.
He said: "The trustees have been guilty of nothing more than trusting the FCA to regulate the advice sector appropriately when in actual fact the advisers (regulated) have acted atrociously.
"The members who have lost out because of the bad advice should be compensated by the Financial Services Compensation Scheme, not the (pension) scheme.
"In addition, trustees should be given guidance and support in how to appoint IFAs for members to refer to ensure they get the right advice.
"Finding good quality advisers is incredibly hard and support is needed. However, trustees that follow a proper process should be protected if the advice turns out to be wrong."
Paul Stocks, financial services director at Dobson & Hodge, argued that "all parties need to engage in a bit of soul searching" in this case – not only the advisers who are perceived to have provided ‘bad advice’ but also the trustees and the regulators.
He said: "Tarring all advisers with the same brush is unfortunate, however the toxic environment of employees potentially fearing for not only their future employment but also their life long pension benefits, a fixed deadline to make a life changing decision and a scheme failing to resource adequately for the member enquiries left the situation ripe for advantage to be taken by anyone who isn't looking to put a member's needs first.
"Who should pay for any detriment for the members is down to the regulators and FSCS [to decide], but I feel the regulators and trustees should look closely at the developments in the run up to the 'Time to Choose' deadline – specifically, the way the scheme uplifted the cash equivalent transfer values once a swathe of members had already opted to transfer out - knowing full well that there was a deadline for members to make the decision."
maria.espadinha@ft.com
