The Financial Services Compensation Scheme estimates that 18 per cent (£3.2mn) of compensation awarded to British Steel Pension Scheme members has been paid in fees to third party firms.
In a letter to the chair of the public accounts committee, Financial Conduct Authority boss Nikhil Rathi said many BSPS members have used third parties such as claims management companies and litigation firms to seek redress on their behalf.
“The NAO report observed that CMCs and their legal representatives charge a fee for their services, which prevents consumers from accessing the full amount of compensation,” he said.
As set out in the report, based on anecdotal evidence from representative firms across the market, FSCS estimates that 18 per cent of compensation awarded to BSPS members through third-party representatives has been paid in fees to these companies.
“As I said at the committee, this is of significant concern to us as it impacts on the long-term financial wellbeing of affected BSPS members,” he said.
“The introduction of a redress scheme as we propose in our consultation negates the need for CMC involvement or of a third party litigation/ law firm as BSPS members will not need to do anything to be included in the scheme.”
The regulator set out plans to deliver £71.2mn in compensation to former members of the BSPS who received unsuitable advice to transfer out of their pension.
This was to ensure that firms can meet the costs of carrying out a review and compensating customers for any unsuitable advice they may have given if the scheme is implemented.
The letter, which is dated to May 18, is in regards to the evidence hearing which was held on April 27.
During the hearing in April, the public accounts committee grilled the FCA and other regulatory bodies on their handling of the BSPS scandal and their plans to introduce a consumer redress scheme.
This formed part of the committee’s inquiry into the BSPS saga which saw 7,700 members, many of whom received financial advice, transfer out of the scheme, representing about £2.8bn in funds.
The committee questioned the FCA on whether legislation was needed to make sure a scandal of this scale did not occur again.
Rathi was asked by MP Nick Smith about the dialogue and discussions between the FCA and HM Treasury in 2015, in particular about its concerns with defined benefit (DB) pension transfers.
In the letter, he listed the timeline from March 2014 when the government announced proposals in the Budget for what would become known as the pension freedoms, publishing an accompanying consultation that ran from March 2014 to July 2014.
The consultation considered how the freedoms could be extended to members of private sector DB schemes.