An advice firm involved in the British Steel transfer debacle has been told to pay out by the Financial Ombudsman Service (Fos) after it found the benefits of the scheme were ‘misrepresented’ and the transfer should not have gone ahead.
The Fos concluded that advice firm Mansion Park gave unsuitable transfer advice and an “unbalanced representation” of its client’s options and the benefits which were available from the British Steel Pension Scheme (BSPS).
The client, who the Fos called Mr B, complained that he felt pressured into the transfer and that the proper steps in assessing the suitability of the transfer weren’t followed by Mansion Park.
Mr B said that, had a proper investigation into the transfer been carried out and suitable advice given, he would not have given up the “valuable benefits” in BSPS and lost secure income in retirement.
Mr B was initially offered a transfer value of £216,495 in March 2017 which was then increased to £545,643 in June.
According to the Fos, Mr B was aware of the issues surrounding BSPS at the time and had lost faith in the scheme and trustees. Therefore he asked Mansion Park to look at his options.
The adviser recommended that Mr B should transfer his benefits to a personal pension plan with Royal London and invest in a range of assets, predominantly in global equities.
The complaint
Mr B complained that Mansion Park hadn’t given proper consideration to his options, and the decision to transfer wasn’t suitable.
He said that all discussions throughout the advice process were geared towards the transfer – as he was aware had also been the case with other Mansion Park clients.
At no point was the alternative of staying with BSPS portrayed as being something to be considered, he argued.
Mr B was also aware of other BSPS members who had been strongly advised by other firms not to transfer their pension funds, and if they did not follow that advice, had been categorised as “insistent clients”.
Mr B said had he been advised not to transfer, he would not have proceeded.
But Mansion Park said Mr B’s individual circumstances and objectives had been taken into account and were fully discussed.
The firm said the fact that it was involved in a number of transfers with other clients wasn’t evidence of a “commoditised process”.
Mansion Park said the recommendation to transfer out was driven by the fact that BSPS was inflexible in terms of the income that would be paid and with a restricted lump sum payout on death.
It also argued that a complaint involving a transfer away from a DB scheme should not be viewed with suspicion by Fos, “nor that there should be any preconception that advice to transfer away will likely be unsuitable”.
But Ombudsman Simon Hollingshead pointed out this response had a “fundamental flaw” .
He said: “If this was an accurate representation of Mansion Park’s starting assumption, then it was a poor start to the process.
“Mansion Park needed to assume that the transfer would likely not be in Mr B’s best interests – and by extension unsuitable - unless it could demonstrate otherwise. So what I need to decide is whether it has done so.”
Ombudsman's findings
Mr Hollingshead raised concerns about the comparison made between the projected benefits from the personal pension and those from the BSPS, or the Pension Protection Fund (PPF).
He said the comparisons could not be compared like for like and therefore Mansion Park failed to adhere to the FCA's Conduct of Business Sourcebook (COBS) which required the firm to provide information for Mr B to be able to make an informed decision.
Had Mansion Park portrayed this fairly and honestly, Mr B may well have viewed things differently, the ombudsman stated.
Mansion Park has also said that the death benefits offered by the transfer would be more beneficial to Mr B and his family.
After the transfer, a lump sum would be payable to his beneficiaries, rather than in the form of dependants’ pensions from the scheme.
Mr Hollingshead raised two issues with this.
He said: “The first is that [...] Mr B had no particular health issues which would mean that death benefits for a 45 year old were of concern at that point. The second is that the benefits provided by the BSPS were valuable.”
He added: “I cannot agree with Mansion Park’s comment that the combination of the lump sum death benefit and the lack of need that Mr B would have for the pension would mean that there was no justification in not transferring. I take the opposite view.”
Therefore he concluded that the transfer should not have taken place and that Mansion Park should put Mr B in the position he would be in if it were not for the “unsuitable advice”.
BSPS debacle
BSPS members were asked to decide by December 2017 whether to move their DB pension to a new plan, BSPS2, or stay in the existing fund, which was then moved to the PPF as part of a restructuring of pension liabilities.
As a result about 8,000 members transferred out of the old scheme, with transfers collectively worth about £2.8bn.
But concerns about the suitability of the transfers were soon raised, leading to an intervention from the FCA that resulted in 10 companies – key players in the debacle – stopping their transfer advice service.
Some of these companies regained their permissions some months later, such as Mansion Park and County Capital Wealth Management, also trading as Pension Review Service.
Others such as Active Wealth went into liquidation, and claims against it have already arrived at the Financial Services Compensation Scheme.
amy.austin@ft.com
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