British Steel Mar 18 2022

Pensions freedoms and BSPS created 'financial feeding frenzy'

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Pensions freedoms and BSPS created 'financial feeding frenzy'

The industry has called for the government and regulators to play a more "active role" in protecting pension savers as it responded to the National Audit Office's scathing report on the British Steel saga.

A report published by the NAO today (March 18) investigated the causes and issues that led to the British Steel Pension Scheme scandal and outlined measures to prevent it from happening again.

Commenting on the report findings, MP Nick Smith said the BSPS scandal was “a perfect storm”.

“New ‘pensions freedoms’ and trouble at Tata Steel facilitated a financial feeding frenzy,” he said. “Pension sharks swarmed on steelworkers, ripping them off through bad advice.

“The government had introduced the requirement of receiving financial advice before transferring out of a scheme and yet most advisers would only get paid if a transfer took place, a financial incentive to recommend transferring out.”

Steelworkers were badly let down, “left at the mercy of rogue advisers, scammers and shameless introducers” without any of the necessary support or advice they needed, he explained.

Smith argued that the Financial Conduct Authority “failed to get a grip on this scandal at the outset” and the regulator’s focus on what happens in the City of London meant it missed the “large scale rip offs” that were taking place in South Wales and the north of England.

“It was totally unprepared for this scandal, with scarce insight into what was happening in the BSPS. By the time they got involved it was too late,” he said. “Over the subsequent four years, communication has been woeful. Not nearly enough was done to make steelworkers aware of their rights to raise complaints and seek compensation.

“Not enough has been done to hold those responsible for this scandal to account, not just the advisers but also their introducer cronies who have so far evaded action. I believe that many of these instances involved conspiracy and possibly warrant prosecution as criminal cases.”

Elsewhere, Stephen Timms, MP and chairperson of the Work and Pensions committee, said the NAO report showed that BSPS members were “failed by an inadequate financial regulation framework”.  

“This left them exposed to exploitation by poor and misleading advice,” he said. “The NAO’s finding that almost half of all advice given in British Steel pensions cases was unsuitable is shocking.”

The FCA has since put in place tightening 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 Financial Ombudsman Service and Financial Services Compensation Scheme it is attempting to remedy the financial detriment suffered by BSPS members. 

Timms said he welcomed the FCA’s regulations and punishing bad actors, but argued it was not right that the victims of this neglect and manipulation have lost out on millions of pounds of redress because of legal limits and company defaults.

“Through its work on the impact of pension freedoms, our committee has highlighted the importance of savers having access to suitable advice. 

“Both government and regulators must play a more active role in protecting pension savers and supporting people to make better decisions about their money.”

‘BSPS scenario should not and could not happen again’

The NAO report outlined measures that the FCA and HM Treasury should consider and whether there are lessons to be learned about the way they work together to identify and mitigate any risks to consumers as policy is being developed.

NAO warned that while the exact circumstances of the BSPS may not be replicated, the risk of large numbers of pension members looking to transfer out of a DB pension remains. 

It said: “The regulators and oversight bodies with responsibilities for protecting pension scheme members should consider what further changes can be made to minimise the risks associated with transferring out of a scheme. 

“This should include consideration of key regulatory factors, such as the strength of existing safeguards to protect consumers in the DB pension transfer process; the regulatory data needed to support proactive intervention and the powers to collect this; and the mechanisms and approaches that can be used to communicate key messages effectively with less accessible firms and consumers.”

However, Simon Harrington, head of public affairs at Pimfa said the regulatory standards of professionalism, with respect to the provision of final salary pension transfer advice, have “improved exponentially since this crisis”. 

He said: “It is on that note that the industry can draw a degree of confidence that a scenario like British Steel should not and indeed could not happen again.

“However, the point remains that significant numbers of individuals who transferred out of the scheme who may be eligible for redress have not come forward. On this point, we will be working with the regulator on the design and delivery of the BSPS redress scheme.”

A badge is not enough

NAO also 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. 

Kevin Hollister, founder of Guiide, said: “Advisers need the required FCA transfer permissions needed to offer this type of advice. There are many excellent advisers out there with these permissions. 

“However, it is now clear members simply cannot rely on this 'badge' to ensure they will receive high quality advice, which is always in their best interests.”

Hollister added: “Given members can't rely on this 'badge', how can they be expected to find high quality advice themselves when considering a transfer? The answer is clear, schemes must either appoint their own vetted advisers, or signpost a service providing vetted and monitored advisers directly to their members. 

“Leaving members to find their own advice, which can lead to the issues seen in the BSPS cases is simply no longer an option.”

Labelling it one of the “biggest financial rip-offs”, Smith said there should be no further delays to putting this injustice to bed for the nearly 8,000 steelworkers and their families. 

In December, the FCA began preparing to consult on a redress scheme for members of the BSPS members and is expected to consult on this by the end of March 2022 having gathered further evidence and following engagement with stakeholders.

The redress scheme would be limited to BSPS transfer advice given between March 1, 2017 to March 31, 2018, and would ask firms to review their advice, and if found unsuitable, provide compensation. 

sonia.rach@ft.com

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