British Steel  

BSPS members' compensation falls short by £18mn, NAO warns

BSPS members' compensation falls short by £18mn, NAO warns

The compensation for British Steel Pension Scheme members has fallen short by £18mn, according to a report by the National Audit Office (NAO).

In a report published by the NAO today (March 18), it said the average loss for BSPS claims resolved by Financial Services Compensation Scheme is £82,600, with individual cases ranging from £0 up to £489,000. 

Compensation awarded by the FSCS to BSPS members is limited to £50,000 for claims against firms that failed before April 2019 and £85,000 for firms that failed after that date. 

However, the FSCS has estimated that the total loss for its upheld BSPS claims is £55.3mn, and the total compensation awarded by FSCS is £37.3mn, resulting in a shortfall of £18mn.

Back in February, FTAdviser reported the lifeboat scheme had paid out a total of £36.5mn at the end of January.

The report by NAO found that 263 pension scheme members have lost £18mn of redress to date because financial advisers have gone into liquidation and there are limits to the compensation that can be provided. 

Around 22 per cent of complaints made to the Financial Ombudsman Service have been passed to the FSCS due to firms being unable to pay compensation.

Additionally, 72 per cent of the Fos’s cases and 40 per cent of FSCS's claims have been made through claims management companies or legal representatives, who charge a fee for their service, meaning some BSPS members have not received the full amount of redress owed to them.

Gareth Davies, head of the NAO, said: "Although measures have been put in place aimed at improving how the pensions advice market is regulated and to attempt to remedy the financial losses suffered by British Steel Pension Scheme members, it is clear that many people have not been compensated fully under current arrangements. 

“The BSPS case demonstrates the costs and difficulties of remedying failures in financial services and the importance of preventing problems from occurring in the first place."

Advice market unprepared 

NAO said the financial advice market was not prepared for the impact of the BSPS restructure. 

Advisers in the local steel-working areas saw very rapid growth in requests for DB transfer advice and the FCA said many of the advice firms had limited experience of processing large numbers of transfers and did not respond appropriately to the increased demand for their services. 

Most advisers were financially incentivised at the time to recommend to members that they transfer out of the BSPS, even when it was clearly not in members' interest. 

In 47 per cent of BSPS cases, financial advice was unsuitable, and in a further 32 per cent of transfers, it was unclear. The FCA said this was much higher than for the DB transfer market in general (17 per cent).

The regulator estimated that 79 per cent of BSPS members who received advice transferred out of the scheme.

The FCA has since put in place measures aimed at improving the regulation of the pensions advice market, such as a ban on charges where advisers are paid only if a transfer proceeds, and along with the Fos and FSCS it is attempting to remedy the financial detriment suffered by BSPS members.