British Steel: Report urges regulators to learn lessons from restructuring
A review of the restructuring of the British Steel Pension Scheme (BSPS) has recommended the UK regulators update rules and guidance regarding member communications.
In a report published today, Caroline Rookes – former director of private pensions at the Department for Work and Pensions (DWP) – called for trustee boards to be able to set up a panel of approved financial advisers to help members understand their options during scheme restructuring events.
Rookes was tasked last year with investigating the lead up to and fallout from the BSPS changes, which were completed last year.
In 2017, BSPS’ sponsoring employer Tata Steel and TPR agreed to a regulatory apportionment arrangement (RAA), allowing the scheme to be legally separated from the employer and transferred to the Pension Protection Fund (PPF).
A new scheme, BSPS2, was set up with the aim of offering the majority of members better benefits than the PPF. Members were then asked to choose between the two options, with 97,000 of 122,000 pension scheme members opted for the new fund.
During the restructuring, many scheme members were targeted by unregulated “introducers” attempting to persuade them to transfer out of their guaranteed defined benefit plans into riskier – and often more expensive – pension products.
The Financial Conduct Authority (FCA) has subsequently barred a number of financial advice firms from providing advice on pension transfers.
Rookes called for the FCA to review its directory of approved advisers “to ensure they are fit for purpose”.
Members should be directed to the UK’s new government-backed financial guidance body – currently known as the SFGB – for guidance and help understanding their options, she said.
The Pensions Regulator (TPR) “should explore if there is a way to allow trustees or the trade unions to identify a panel of financial advice firms that members can select from”, Rookes added.
In the report, Rookes encouraged TPR to take the lead on improving member communications guidance.
However, Rookes said in her report that a lack of communication prior to the RAA announcement had led to “suspicion, concern and uncertainty” among members.
Additionally, once the BSPS trustees began their ‘Time to Choose’ communications exercise, the short timeframe for responding to the options resulted in a huge increase in calls and information requests to the pension fund’s management office.
Despite calling in temporary staff, Rookes said the office “entered a downward spiral” with a growing backlog of transfer requests and other correspondence.
“The volume and complexity of the work of the office was unprecedented,” Rookes reported.
Further reading on British Steel
Ground-breaking restructuring gives way to advice controversy
UK politicians heard how BSPS was inundated with transfer requests and unscrupulous advisers attempted to persuade members to exit the scheme
TPR should consider placing a “more explicit” duty on trustees to ensure communications are effective, Rookes said.
“All restructurings will be slightly different and therefore require bespoke communications,” she stated. “It should be possible to look at some standard wording for areas such as the risks on cash transfers that can be tried and tested before use.
“In addition a good communications guide for trustees would be a helpful starting point, highlighting the need to develop a communications strategy.”
She also urged trustees to consider digital communication strategies in addition to physical paperwork to engage more people. The BSPS trustees ruled out setting up support pages on Facebook as they believed that “many members would not be users of such channels”.
Regulatory and public bodies “should check their websites for consistency of messaging, cross referrals and ease of use,” Rookes added.
The full report can be accessed here.
In statements today, the UK’s regulators stood by their actions during the BSPS restructuring process, but accepted that there were “important lessons to be learnt”.
Lesley Titcomb, chief executive of TPR:
“We welcome the report, which acknowledges the good outcome secured for members through an innovative restructure of the pension scheme which we approved. The arrangement led to a £550m cash contribution to the British Steel Pension Scheme and brought certainty for around 125,000 scheme members. It was a strong outcome because the vast majority of members made an active choice with most opting into the new scheme.
“We are grateful to Caroline Rookes for identifying a number of useful themes in her review which will help ensure pension savers are less likely to make transfer choices which are not in their best interests. We will now work together with trustees and the government so that we can all address the review’s recommendations.”
Megan Butler, executive director of supervision at the FCA:
“The report is an honest, impartial account of what was a difficult and sensitive situation.
“The FCA stands by the action it took in those challenging times but, as with every case where we have had to intervene, there are always important lessons to be learnt. The FCA remains firmly committed to working with TPR and the SFGB – and other organisations – to ensure we are all working together to continue to protect pension savers and take on board the lessons from British Steel.”
The trustees’ perspective
Allan Johnston, who chaired the BSPS trustee board and is now chair of the BSPS2 trustees, said in a statement:
“The objective of the trustee when negotiating the terms for the restructuring and implementing Time to Choose was to secure the best possible outcome for BSPS members.
“It is a source of great satisfaction to the trustee that, together with Tata Steel and the various regulatory bodies, we were able to give members a choice. Over 80,000 members decided that the new BSPS represented the best outcome for them based on their personal circumstances.
“Time to Choose was probably the largest pension consultation exercise of its type ever carried out in the UK. The results of the member survey conducted for the review are consistent with feedback received directly by the scheme and show that members were generally satisfied with the information provided and with the decisions they made.
“Undoubtedly, if it had been possible to take more time with Time to Choose, the member experience could have been improved. But the restructuring had to be completed to a very tight timetable. The trustee has made a number of suggestions for changes in the legal and regulatory framework that would give more time to other schemes in similar circumstances.”