The industry could face a compensation bill of between a quarter and a third of a billion pounds for British Steel Pension Scheme transfers, even with steelworkers not being fully compensated for poor advice, Philippa Hann has said.
Appearing on the Pension Playpen’s coffee morning today (August 17), Hann, partner at law firm Clarke Wilmott and the solicitor representing some of the British Steel workers, said while steelworkers will be “wildly undercompensated” advisers still have a large bill coming their way.
Hann said her firm is acting against 90 firms, many of which do not have sufficient professional indemnity insurance in place.
She said: “About one of those 90 firms still has insurance in place in relation to the business that they wrote.
“And what that means is that the people who transferred and who were wronged will be wildly undercompensated. In many cases they will be undercompensated by six figures or more. Occasionally seven figures.
“That compensation burden will fall on to the industry and currently we estimate, even on the undercompensated basis, that that compensation will cost the industry, between a quarter and a third of a billion pounds.”
Despite the debacle Hann praised the 'good guy' advisers, adding the requirement to get advice when looking to transfer out of a pension was a good system and one which was designed to save savers from making poor decisions.
“Did these advisers wake up one morning and decide to be bad? I don't think they did,” Hann said.
“I think the fear that was expressed by the steelworkers was too much for them to bear. I think the lure of, not only the money on the transfer but also inflating the funds under management and having 1 per cent of that for their entire life was too much for greedy advisers to resist.”
Will it happen again?
Although a DB scandal may not happen on the same scale of the BSPS in the future, Hann believes something similar could happen again.
She said: “Of the nine firms where they gave up their DB pension transfer permissions, six of them are now insolvent and none of them have insurance to cover the bad advice they gave."
To stop this from happening again, Hann said the industry needed to put pressure on the Financial Conduct Authority to ensure firms have proper insurance to cover the cost of claims.
She added: “We ought not to be having a major part of our economy, where there is such potential for there to be catastrophic losses to individuals, out there where past business can be excluded.”
Hann said there was a whole group of advisers who were uninsured in relation to these claims.
“If there is proper insurance in place, where the IFA remains insured, we do not have a scenario where we have people who were being undercompensated and a third of a billion pound going to the FSCS and the weight of that falling on the shoulders of the rest of the industry.”