Around 8,000 steel workers suffered "significant financial losses" after being given unsuitable advice about their pensions, a report has concluded. Many were poorly advised to transfer their savings out of the British Steel pension scheme by advisers who received financial incentives if people left the scheme..
The MP for Blaenau Gwent has described the scandal as "one of the biggest financial rip-offs of working people in south Wales" and called for those responsible to be held to account. Pension and benefits rates are changing, see how that could impact you here.
The British Steel Pension Scheme (BSPS) was a scheme sponsored by Tata Steel UK which was restructured in 2017 after Tata Steel experienced financial difficulty. The average loss for claims already resolved is £82,600, with individual losses ranging from £0 to £489,000.
The FSCS’s compensation limit for advice firms that failed after April 2019 is £85,000. However, so far only 25% of those who transferred from the scheme have sought redress through complaints. A number of those who made claims did so through companies which charge a fee for their service meaning some of those affected have not received the full amount of redress owed to them.
Read more: Why every pensioner doesn't get the full £180 a week
What happened?
During the BSPS restructure, members had to decide between two options for managing their pension benefits, 44,000 members were given an alternative to transfer their pension fund out of the scheme altogether.
Members who wanted to transfer out of the defined benefit scheme had to take financial advice from a regulated adviser if the value of their pension is greater than £30,000. Almost 8,000 members chose to transfer their benefits out of the scheme to another pension arrangement and in 95% of cases, they were informed by independent financial advisors.
The National Audit Office report, published today, said BSPS members were particularly vulnerable to pension advice mis-selling.
The financial advice given was unsuitable in 47% of cases and unclear in a further 32% of transfers according to the FCA. That is much higher than in the equivalent transfer market in general (17%).
"Pensions are highly complex and most BSPS members had limited experience of making decisions about their pension or using a financial advisor. Members had a limited time to decide what to do with their pension and the value of members’ benefits were substantial (the average transfer value was £365,000, with some worth over £1 million). Other reviews of the BSPS case have found that the communication and support provided to members at the time of the scheme restructure was not adequate to inform their decision."
The report says that the financial advice market was not prepared for the impact of the BSPS restructure.
Financial advisers in steel-working areas saw a rapid growth in requests for help and the Financial Conduct Authority (FCA), which is responsible for supervising financial advisors, told the NAO that many of the advice firms had limited experience of processing large numbers of defined benefit transfers and did not respond appropriately to the increased demand for their services."
It also found most advisers received financially incentives if they recommended out of the scheme even when it was clearly not in members’ interest. The FCA estimates that 79% of BSPS members who received advice transferred out of the scheme.
The report said that the FCA had "limited insight" into the advice market and what was happening in the British Steel Pension Scheme at the time and data about the number of transfer requests were held by people who weren't FCA authorised meaning the FCA had no idea the level of people transferring from the scheme.
The FCA has issued £1.3 million of fines and has 30 more enforcement investigations ongoing and has since changed its approach to regulating the pensions advice market.
The FCA is yet to decide whether to implement a consumer redress scheme for BSPS members, in which all firms involved would have to review their advice and potentially offer compensation. The FCA must gather evidence to meet certain legal tests before it can implement this scheme. The regulator started assessing the suitability of a consumer redress scheme in April 2021 and expects to launch a consultation on this by the end of March 2022.
Gareth Davies, the head of the NAO, said: "Although measures have been put in place aimed at improving how the pensions advice market is regulated and to attempt to remedy the financial losses suffered by British Steel Pension Scheme members, it is clear that many people have not been compensated fully under current arrangements. The BSPS case demonstrates the costs and difficulties of remedying failures in financial services and the importance of preventing problems from occurring in the first place."
Nick Smith MP for Blaenau Gwent said: "These steelworkers were badly let down, left at the mercy of rogue advisers, scammers and shameless introducers without any of the necessary support or advice they needed.
"The FCA failed to get a grip on this scandal at the outset, being too focused on what happens in the City of London, missing the large scale rip-offs that were taking place in the kitchens of consumers in South Wales and the north of England. It was totally unprepared for this scandal, with scarce insight into what was happening in the BSPS. By the time they got involved it was too late.
"Over the subsequent four years, communication has been woeful. Not nearly enough was done to make steelworkers aware of their rights to raise complaints and seek compensation. Not enough has been done to hold those responsible for this scandal to account, not just the advisers but also their introducer cronies who have so far evaded any action. I believe that many of these instances involved conspiracy and possibly warrant prosecution as criminal cases. I have been calling for a redress scheme for some time now, as I believe this is the best course of action to put things right for those affected. This was one of the biggest financial rip-offs of working people in South Wales and other steel-making areas. There should be no further delays to putting this injustice to bed for the nearly 8000 steelworkers and their families."
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