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.
Changes may make sense to actuaries, the FCA and the IFAs but there is no rhyme or reason to this - if you are a steelworker. Henry Tapper, AgeWage"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.
“Changes may make sense to actuaries, the FCA and the IFAs but there is no rhyme or reason to this - if you are a steelworker."
More concerns ahead
Simon Harrington, head of public affairs at Pimfa, said the publication of this policy statement should provide “welcome clarity” for those who were wrongly advised.
“It is right that those people are compensated and are given clear routes to ensure they are done so in an efficient manner. We think this policy statement broadly achieves that.”
However, Harrington said that while clarity for consumers is important, Pimfa anticipates that a number of firms will be left uncertain of their exposure to this scheme.
“It is regrettable that the FCA has not addressed valid concerns that have been raised by the industry generally.
“Those concerns centre on the construction of the Defined Benefit Advice Assessment Tool (DBAAT) and the ability of Financial Ombudsman Service (Fos) to adequately adjudicate cases in a manner which gives due consideration to the technicalities and intricacies of pension transfer advice.”
Aside from the direct impact on members who were poorly advised, the scandal will also inevitably harm trust in retirement saving more generally. Tom Selby, AJ BellHarrington added: “We also continue to retain concerns that the total cost of the scheme – and associated claims upheld once advice has been found to be suitable by the firms - will be significantly higher than set out in the FCA’s revised cost benefit analysis.”
Pimfa encouraged the FCA to report against this in order to inform future cost benefit analyses and stress test the assumptions they currently have on this market in particular.
The FCA said firms should provide BSPS members with their redress calculation by the end of December 2023, if individuals opt to receive it as a lump sum.
Those opting to receive redress as a payment into their pension should receive their calculation by February 2024.
At the same time today, the FCA proposed an extension of its asset retention rules for firms who advised BSPS members, as existing temporary rules are due to end on January 31.
The regulator first announced the use of its emergency powers in April as a way to prevent firms who advised members of the BSPS from disposing of assets to avoid paying compensation.
They were introduced without consultation in a policy statement, with the FCA stating the changes were in light of the risk that some firms could take steps to get rid of their assets if the rules were consulted on first.
Matthew Connell, director of policy and public affairs at the Personal Finance Society, said he recognises that a significant number of BSPS members were given unsuitable advice.
“We should remember that the FCA estimates that over half of transfer cases were found to be suitable, in spite of a chaotic transition process to the new British Steel pension arrangements, in which key information was only given to members in a piecemeal way by the BSPS,” he said.
“This figure is in stark contrast to Fos uphold rates for BSPS complaints that were running at 98 per cent at the beginning of 2022.”
Connell explained that it is important that Fos judgements follow the approach set up by the FCA for the Section 404 scheme.
“If a complaint to the Fos at the end of the process ends is almost certain to be upheld, then ultimately consumers will end up paying a compensation bill that is not justified by the facts.”
BSPS saga
During 2017, BSPS members were asked to make decisions about their pensions as part of a restructure of the scheme.
About 8,000 members transferred out of the scheme, with transfers collectively worth about £2.8bn.
But concerns about the suitability of the transfers were soon raised, leading to an intervention from the FCA that resulted in a number of advice firms – key players in the debacle – stopping their transfer advice service, while others went out of business.
It’s hugely important people get what is owed to them and many could receive potentially life changing amounts. Helen Morrissey, Hargreaves LansdownThe debacle created a mountain of liabilities, which lawyers believe could end up costing the industry up to £300mn.
Tom Selby, head of retirement policy at AJ Bell, said: “While the vast majority of advisers in the UK provide a hugely valuable service to their clients, the few bad apples who gave bad advice to British Steel members have sadly tarnished the reputation of the entire sector.
“Aside from the direct impact on members who were poorly advised, the scandal will also inevitably harm trust in retirement saving more generally.
“As a result, the wider pensions industry will now need to redouble efforts to ensure people aren’t put off saving for retirement altogether.”
Yet he added that for those affected, today’s update should be seen as good news as it brings them closer to the end of a “painful saga” which cast uncertainty over their retirements and should ensure any financial damage done is rectified.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said it was the end of the long-running saga edging closer.
"The news will be welcome to those looking to make a claim, but care must be taken to ensure as many people as possible who should benefit from this scheme do so.
"The policy statement highlights that many people are yet to come forward either because they don’t know they could benefit, or they are hesitant to approach their adviser."
sonia.rach@ft.com
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