The saga of the British Steel Pension Scheme (BSPS) members rumbles on – but there may be a glimmer of hope.
The board of the Financial Conduct Authority announced on Wednesday that it has asked for a consultation to be prepared on a redress scheme for members who transferred their pensions.
It comes five months after its chief executive, Nikhil Rathi, informed the Treasury Select Committee that the FCA did not yet have “sufficient evidence” to set up a compensation arrangement.
But, while this development is good news for British Steel members, it does not signal a wholesale change at the FCA.
“A redress scheme would be limited to BSPS transfer advice. BSPS is a highly exceptional case with the FCA’s analysis indicating significantly more unsuitable advice (47%) than observed in reviews of higher-risk firms in non-BSPS cases (17%),” the FCA stated.
According to figures from AJ Bell, the average sum transferred by scheme members was £405,000 ($536,155, €475219).
The watchdog expects to consult by the end of March 2022, having gathered evidence and following engagement with stakeholders.
Dear CEO
Firms that gave pension transfer advice to scheme members between 1 March 2017 and 31 March 2018 have been sent a ‘Dear CEO’ letter.
“It sets out the actions we expect firms to take with immediate effect,” writes Sheldon Mills, the FCA’s executive director, consumers and competition.
“Under the redress scheme, firms which advised on BSPS transfers would be required to review their advice.
“If the advice is unsuitable and resulted in financial loss for former BSPS members, the firms would be required to provide compensation.”
The letter pointedly outlines three expectations:
- Firms must have adequate financial resources,
- Firms should retain assets for a potential redress exercise,
- Firms should not try to avoid their responsibilities
Mills added: “We will also be contacting firms in early 2022 in order to confirm our understanding of the BSPS business written by them and to collect information to enable us to understand your firm’s potential exposure to liabilities relating to BSPS transfer advice.”
Bad apples
The “industrial scale” of the BSPS transfer scandal meant “it was always likely a formal redress scheme would be needed to pay compensation”, says Tom Selby, head of retirement policy at AJ Bell.
“Although transferring out of a DB pension can make sense in certain circumstances, such a decision needs to be taken with great care and with the member’s best interests at heart. Sadly, it is increasingly clear that this was not the case in relation to many British Steel transfers.”
He adds: “While most advisers in the UK provide a valuable service to their clients, the few bad apples involved here have sadly tarnished the reputation of the entire sector. Indeed, negative headlines associated with British Steel will inevitably have hurt trust in retirement saving more generally.
“Among those who are unsure about pensions, scandals such as Robert Maxwell, Equitable Life and now British Steel live long in the memory.
“The focus now has to be on ensuring members entitled to compensation receive it as quickly as possible.
“The regulator has also sent a fairly blunt message to those firms potentially on the hook for DB transfer mis-selling not to attempt to dodge their responsibilities by deliberately depleting their assets.”
