British Steel Pension Scheme Contents

Conclusions and recommendations

Introduction

1.The UK steel industry has been in long-term decline, and Tata Steel UK had become a large pension scheme with a shrinking company attached. The deal to maintain steel production in Port Talbot is very welcome. The outlines of that deal have been in place since May 2017. That ought to have been more than enough time to ensure that scheme members were adequately supported in the decisions they would need to make. (Paragraph 9)

Choices on offer to BSPS members

2.Current and former steelworkers had to make very important, and often complex, decisions about their pensions by December 2017. They were woefully under-supported in making those choices. The hard work of BSPS trustees and staff in trying to rectify that should be recognised, but they were ultimately overwhelmed. They did not anticipate the levels of demand on their services, particularly from members interested in DB transfers. It was the responsibility of TPR, who oversee trustees and signed off the RAA, to monitor the situation and ensure that members were not left in the dark. Along with the PPF and the Government, they afforded insufficient priority to ensuring the steelworkers were adequately informed. While the setting up of a dedicated TPAS helpline was welcome, it came too late. (Paragraph 21)

3.We recommend TPR conduct a review of the information and support provided to BSPS members as part of the Time to Choose exercise, incorporating feedback from the scheme members. This review should be published and form the basis of an action plan to counter risks in any similar cases in future. We further recommend that, in the context of a wider effort to enhance and digitise scheme record-keeping in readiness for the pensions dashboard, TPR require all schemes to be able to calculate what each member’s benefits would be under both statutory minimum indexation and PPF compensation rules. (Paragraph 22)

4.Despite the pension scheme’s efforts, 25,000 of its 124,000 members did not respond to the Time to Choose exercise. They are therefore heading for irreversible default into the PPF. Thousands of those members would have been better off in BSPS2, including some ill or elderly pensioners who may well have been unable to decide in their own interests. A longer deadline may have enabled more members to engage with the process. More clearly, a system of deemed consent would have ensured that members unequivocally better off in BSPS2 would have been moved there if they did not respond. That system would have resulted in better outcomes for pensioners and freed administrative resources to support members for whom the decision was less clear-cut. (Paragraph 29)

5.The deal to save Tata Steel UK has been carefully constructed and has a tight timetable. It is vital that it proceeds. It is too late now to extend the decision deadline further or introduce deemed consent for this scheme. The Government should, however, draw on the BSPS experience and ensure that an adequate legislative framework is in place for similar future deals. We recommend that, in its forthcoming white paper on defined benefit pension schemes, the Government bring forward proposals for a system of deemed consent. This should enable the bulk transfer of members from a DB scheme certain to enter the PPF into an alternative scheme providing unequivocally better benefits than the PPF to those members. It should be used for future cases similar to BSPS. (Paragraph 30)

DB transfers

6.BSPS members were faced with a life-changing choice in a hurry. Many had lost trust in the sponsor company and its pension pledges. The scheme was under-resourced and unable to provide basic facts to inform a complex choice. Its members were apparently neglected by the company, Government, and TPR in their focus on the deal to keep the company going. A member communication plan sanctioned by TPR proved woefully inadequate. Against hard deadlines to choose one of two options worse than their promised pension, many members of working age were attracted to a third option. There was a surge in interest in DB transfers, seemingly unforeseen by all involved. Under pension freedoms, a transfer offered members control over a substantial sum of their own money. Foregoing a generous, indexed and secure retirement income is not, however, the right option for most people. Reputable local IFAs were overwhelmed by demand for advice. The circumstances surrounding the BSPS created perfect conditions for vultures to take advantage. (Paragraph 41)

Vultures

7.Dubious advisers exploited BSPS members for personal gain. They were supported in this cynical enterprise by unregulated and parasitical introducers, who were incentivised to induce as many steelworkers as possible to consider transfers. The advisers, using contingent pricing models, were then incentivised to push those transfers, often against the interests of the scheme members. While doing so, they shamelessly bamboozled those members into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees. (Paragraph 50)

8.Contingent charging gives rise to an inherent conflict of interest. The theoretically independent adviser is only paid if they advise a particular course of action. The FCA acknowledges this concern, but hopes that guidance and careful monitoring will ensure adequate consumer protection. This model has failed BSPS pensioners. The FCA’s own national research also gives cause for great concern. Another major misselling scandal is already erupting and requires urgent action. We recommend that the FCA ban contingent charging on defined benefit pension transfer advice. Genuinely independent expert advice, on what for many people could be their biggest financial decision, has a value irrespective of whether a transfer is the outcome. (Paragraph 51)

Action on unsuitable advice

9.The FCA has been gradually picking off firms who were providing unsuitable advice to BSPS members. This action is welcome, but it came far too late for the vast majority of members who transferred their pensions. While heightened interest transfers began in April 2017 and peaked with the Time to Choose exercise from October 2017, suspensions of FCA firm permissions did not begin in earnest until December 2017. FCA action followed a determined campaign by steelworkers and good Samaritans, substantial media coverage, our select committee work and intervention by local MPs. The delays were partly a problem of coordination—the trustees are responsible for safeguarding the interests of scheme members and TPR is responsible for ensuring that task is performed appropriately with adequate support. They ought to have ensured the FCA was informed and pressed to intervene quickly. The FCA has long been aware, however, of problems with DB transfer advice. They should have been monitoring the developing risks surrounding the BSPS and intervened earlier to protect members against unsuitable advice. (Paragraph 55)

10.We welcome the FCA’s decision to review the entire DB transfer advice market. It must be prepared to act decisively to protect consumers. (Paragraph 56)

11.The FCA online register is a potentially valuable resource but is currently very confusing. Vital consumer protection information, such as the suspensions of permissions, must be given far greater prominence. The FCA has rightly acknowledged it must improve its website. We recommend that the FCA name firms and individuals suspended from providing pensions advice. It should take immediate action to make such suspensions clear at the top of register entries and in search results. We further recommend that it publish its broader plans to redesign the register. (Paragraph 60)

12.Transferring out is not in the interests of most DB scheme members. Advisers should start from the presumption that it is a bad idea for their client, and be able to justify clearly a change of mind. In the light of the BSPS experience, the FCA’s proposal to remove that safeguard looks reckless. It should be abandoned. (Paragraph 62)

13.BSPS members who took a DB transfer on poor advice can seek redress. Ultimately, some bills may end up being footed by reputable advice firms through a compensation levy. Financial compensation for steelworkers will not, of course, make up for the sense of betrayal many feel for how they have been treated. (Paragraph 65)





9 February 2018