Members of the industry have welcomed the regulator’s final rules on a redress scheme for British Steel Pension Scheme members who were poorly advised, but many remain sceptical about the details of the scheme.
In its final rules published today (November 28), the Financial Conduct Authority said 1,100 BSPS members who were misadvised to transfer out of their pension will receive £49mn in redress payments.
The size of the total redress pot is substantially lower than the £71.2mn outlined by the regulator in March, with the average payment expected to be £45,000.
The regulator said this reflects a drop in the number of members it expects will receive redress and an improvement in annuity rates used to calculate redress.
Redress is calculated based on the money needed to top up a personal pension, so the consumer can purchase an annuity at retirement that provides an income similar to what they would have received had they stayed in the BSPS.
As it now costs less to buy an annuity, the FCA said it expects the average redress payout in the scheme to be lower than originally estimated.
Speaking to FTAdviser, Al Rush, principal of Echelon Wealthcare, said: "Those who are on the cusp of reaching the scheme retirement age, or retiring, won’t be quite as much disadvantaged by the spike in the gilt yield, and subsequent low compensation, as those in the 30s and 40s and possibly early 50s.
"The reasoning behind the low compensation which is related to higher gilt yields, and consequently the lower cost of an annuity, will still have 20 or 30 years to experience at least two or three pronounced economic cycles which will expose their compensation to volatility, uncertainty and loss.
"This therefore, is not in keeping with the FCA edict that compensation puts the steelworkers back into the position that they would’ve been in, if they had not transferred out."
AgeWage and Pension PlayPen chairperson Henry Tapper agreed as he said the compensation has fallen from £71mn to £46mn, "entirely down to the rise in gilt rates - the same rise that nearly blew up pensions in September".
“It means that the average compensation has fallen from around £75,000 to £60,000 and it means that 300 steelworkers who would have received compensation are excluded," he said.
“This may be good news for IFAs due to pay compensation and Financial Services Compensation Scheme which covers payments from IFAs that have closed down, but it's not good news for the steelworkers.”
Tapper also said that the FCA is still expecting it to take till the end of 2023 for the compensation to be calculated and many steelworkers will be subject to a seven year wait for claims.
“Steelworkers who have already claimed may have had compensation calculated against annuity rates that were up to 40 per cent lower, making their compensation up to 40 per cent higher.