Investigation into the British Steel Pension Scheme – Report Summary

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Author: Committee of Public Accounts

Related inquiry: British Steel Pension Scheme

Date Published: 21 July 2022

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Summary

The regulated financial advice market is designed to safeguard consumers from making poor financial decisions. However, for members of the British Steel Pension Scheme (BSPS) the advice market failed to protect them and caused serious financial harm. Advisers were financially incentivised to provide unsuitable advice, which led to approximately 7,800 steelworkers transferring out of their defined benefit (DB) pension scheme and as a result, losing an average of £82,600 in life savings.

The FCA has consistently been behind the curve in responding to unsuitable pension transfer advice. Despite being aware of the potential risks to consumers caused by new legislation in 2015, it failed to take preventative action to protect consumers. In 2017, the FCA had limited insight into the risks to members from transferring out of DB schemes. It did not know what was happening in the DB pension transfer market or the BSPS case, and failed to identify the scale of the issue. It had inadequate oversight of the firms involved, and later found out that in 47% of cases the advice provided was unsuitable. The FCA’s response involved a light touch regulatory approach failing to take swift action and adequately protect consumers. Focussed on gathering further evidence and issuing letters to firms, rather than enforcing against non-compliance, to date it has issued only one fine. To remedy the financial detriment caused, the FCA adopted a standard complaints-based redress process which proved ineffective for BSPS members, with only 25% of BSPS members raising complaints. Many have not been compensated fully, and for those whose advice firms have entered insolvency, £21 million in compensation has been lost due to financial limits. The FCA has proposed a redress scheme, which the FCA estimates would cost around £71.2 million in compensation to those who received bad advice. However, there are concerns that this figure may end up being significantly higher.

The BSPS case points to wider issues within the regulation of financial advice, such as the FCA’s authorisation and oversight of small firms, its access to data and intelligence to identify problems, and its use of enforcement powers to respond to them quickly. It also highlights significant risks including the overall function of the pension advice market and the capacity of redress organisations to manage large scale consumer detriment.