A parliamentary committee is considering lobbying for a change to pension rules to prevent thousands of members of the British Steel Pension Scheme (BSPS) from being automatically transferred to the Pension Protection Fund (PPF).
During a hearing this morning, Frank Field, chair of the Work and Pensions Select Committee, indicated that he would consider writing to the Secretary of State for Work and Pensions, David Gauke, to recommend the change.
As part of a restructuring to prevent the insolvency of the scheme’s sponsor, Tata Steel UK, 130,000 members have been asked to choose between the default option – moving to the PPF – or joining a new scheme. The new scheme, dubbed BSPS2, provides lower benefits than currently available but will not cap payouts in the same way as the PPF.
An estimated 30,000 pensioner members of the BSPS have yet to respond to communications from the trustees about what they wish to do with their benefits.
Allan Johnston, chair of BSPS trustees, said he had lobbied the Department for Work and Pensions to change the default option for members. The trustee board has long maintained that the majority of members would be better off in BSPS2.
Johnston estimated that as many as 20,000 pensioners could be transferred to the PPF by default. While their pension benefits would not be cut, the PPF applies limits to indexation and does not apply any uplifts to benefits earned before 1997. Those having taken early retirement may face limits as well, according to the lifeboat fund’s website.
New BSPS takes shape
Trustee chairman Allan Johnston also revealed to the MPs’ committee that more than half of members had chosen to transfer to BSPS2.
Roughly 84,000 people had responded to the trustees’ Time To Choose campaign, he said, with 89% opting for the new scheme.
This would likely give BSPS2 roughly £8.5bn-£9bn of assets under management, according to the chairman. The existing scheme has approximately £15bn of assets.
BSPS2 will be officially set up in the first few months of 2018, ready to take on members from the end of March. Tata Steel UK will sponsor the new scheme.
Members transferring to BSPS2 will have their benefits linked to a lower measure of inflation, but most other aspects of the current scheme rules will be carried over to the new scheme.
More advice problems come to light
At the hearing this morning, the UK regulator revealed that it had barred four firms from providing pension transfer advice following concerns raised around advice given to BSPS members.
Many members yet to retire can decide against either of the DB schemes in favour of joining a separate, defined contribution scheme of their choosing. However, such activity is strictly regulated and requires professional advice before it can be carried out.
“We’ve had 12,200 people apply for transfer out quotes. Dealing with that massive upsurge has been almost impossible.”
Allan Johnston, BSPS trustee chairman
Megan Butler, director of supervision at the Financial Conduct Authority, was persuaded by MPs to name three of the four companies that had been barred or voluntarily stopped providing advice: Active Wealth, Pembrokeshire Mortgage Centre, and Mansion Park.
Active Wealth director Darren Reynolds was due to appear in front of MPs today along with Clive Howells, managing director of unregulated introducer firm Celtic Wealth Management. Neither attended the session.
Frank Field said: “We are surprised that Mr Reynolds and Mr Howells have chosen, at late notice, not to take up our invitation to put their side of the story in a public forum. No doubt it is more of a loss to them than it is to parliamentary process. We will be putting further questions to them in writing. If their answers are not satisfactory, we may require them to come in.”
More firms are under investigation, Butler told MPs.
“We have made 10 visits to firms where we have had direct intelligence on concerns around the quality of their advice, or where they are particularly active [in pension transfers],” Butler said.
“When we see high numbers of transfers going through, we ask [firms] expressly why it is they have satisfied themselves that it is suitable in so many cases to transfer, where for most people most of the time staying in a DB scheme is a better outcome.”
Earlier in the day, MPs heard from members of the scheme that the pension office had been “overwhelmed” by requests for transfer values.
Local advice firms had also been inundated with enquiries from BSPS members – so much so that many had to close their doors as they could not cope with the volume of calls, according to retired steelworker Stefan Zaitschenko.
Johnston admitted that the trustee board had not envisaged the “massive upsurge” in transfer activity.
“We’ve had 12,200 people apply for transfer out quotes,” he said. “Dealing with that massive upsurge has been almost impossible. We can’t just hire in staff to do this because it’s very detailed and has to be done properly.”
Members must select the PPF route or BSPS2 by 22 December. The moves will take place at the end of March.