Defined Benefit  

Pension transfer denial returns to bite steelworkers

Pension transfer denial returns to bite steelworkers

Steelworkers who were denied a buddy transfer when they left the British Steel Pension Scheme are facing another financial blow amid the coronavirus crisis. 

Concerns have been raised that those members who were denied a so-called buddy transfer, which would have allowed them to retain their protected pension age of between 50 and 54-years-old, could now face years of financial uncertainty if made redundant during the pandemic and its economic fallout. 

Financial Adviserhas learned of one steelworker who was made redundant in March aged 52, but as a result of being refused a buddy transfer when he left the BSPS, is unable to access his pension for another three years.

It comes amid a shrinking job market and increasing financial pressures as a result of the coronavirus crisis. 

There is no obligation on a trustee to arrange a buddy transfer for members leaving a pension scheme. At the time of the BSPS restructure, trustees said they would not facilitate the process in light of the "additional administrative burden" on an already "increased workload".    

This was despite a warning from Frank Field, then Labour MP and chairman of the Work and Pensions Committee, in 2017 that members would lose their protected pension age as a result of buddy transfers being ruled out on the grounds of administrative complexity.

Rich Caddy, shift operations manager at British Steel in Teesside and one of the former members of the pension scheme, said many steelworkers had been frustrated with the outcome. 

Mr Caddy said: "Some steelworkers went to advice firms where advisers agreed to help them transfer with their protected pension, but the trustees would not allow a buddy transfer. 

"It is understandable at the time they [the trustees] were dealing with a lot of admin, and we get that. But for the sake of them signing a piece of paper it now means redundant steelworkers are facing years of not being able to access their pension and potential financial uncertainty."

Had the steelworkers stayed in the BSPS and not transferred out, they would have now been able to access their pension at 50. 

Buddy system

A block transfer, often known as a buddy transfer, is where at least two members of a pension scheme transfer at the same time in the same transaction to another registered pension scheme. 

Members would often choose to do this type of transfer in order to hold on to any protected tax-free cash or protected retirement age after pension benefits had been transferred.

According to HM Revenue & Customs, there is no restriction on the type of registered pension scheme receiving the transfer. A personal pension scheme can receive a block transfer as long as the other block transfer conditions are met.

At the beginning of this year Mr Caddy called on the FCA to set up an independent review of transfer documents used with BSPS clients, warning many members felt uncertain of the choice made in 2017 and advice they received.