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British Steel insolvency puts advice to the test

British Steel insolvency puts advice to the test

Advice given to British Steel workers to transfer out of their pensions could soon be put to the test as the advisers may not have anticipated their clients being out of work quite so soon.

It was announced yesterday (May 22) that the company responsible for the Scunthorpe steel works has been placed in compulsory liquidation, putting 5,000 jobs at risk.

Members of British Steel Pension Scheme II are safe, as the pension scheme has Tata Steel UK as the sponsor employer.

But Alastair Rush, principal at Rutland-based Echelon Wealthcare who has been providing free counselling to steelworkers, told FTAdviser the latest news would test the advice given to steelworkers who transferred out.

Members of the BSPS were asked to decide what to do with their pensions as part of a restructuring process in 2017.

As a result about 8,000 members transferred out by October last year, with transfers collectively worth about £2.8bn.

Mr Rush said the advice given at the time was unlikely to have covered a situation like this, whereby the steelworkers were out of a job within a year.

He said this put them at risk of running out of money early as they may have to dip into their pensions earlier than expected.

He said: "The people who aren't taking money from their pension and anticipated to work for further three or four years, and who now find themselves without a job, need to take their money from somewhere - if they're over 55 they can take it from the pension.

"A defined contribution pot isn't a magic money tree, and a lot of them were sold the idea that it was."

Mr Rush also noted that the cashflow model used by many of the advisers working with the steelworkers, was predicated at individuals taking benefits at 60, which has now "gone out the window".

He said: "All the files I've seen in Port Talbot do cash flow modelling at one age, they don't talk about options."

Mr Rush said different scenarios such as taking benefits earlier or later should have been part of the cashflow modelling advisers include in their suitability reports.

What's more, steelworkers could find themselves without help going forward, Mr Rush warned.

He said: "Many advisers were doing a high number of cases, and aren't around to give ongoing services."

Mr Rush spoke to three people in Port Talbot yesterday (May 22) who signed a contract for ongoing services, but haven't spoken to their adviser for almost 18 months.

He said: "If the situation is the same in Scunthorpe, they will need an adviser.

"Drawdown is complicated, you're going into something that you can't reverse and you may need advice."

Alistair Cunningham, financial planning director at Wingate Financial Planning, said if a client has experienced a significant period in work and is now going to stop working it could negatively impact his pension plan for a number of reasons.

He said: "You have less time to save, less time to see your savings grow, and the third is that you will be drawing down for a longer period of time."