Three UK financial advice firms have stopped providing defined benefit (DB) transfer advice to members of the British Steel Pension Scheme (BSPS) after the regulator intervened.
The Financial Conduct Authority (FCA) said in an announcement yesterday that it planned to visit six more financial advice firms in an effort to address concerns that members were being persuaded to give up their DB pensions and invest in unsuitable, esoteric products. IPE has received anecdotal evidence of some advisers and unregulated “introducers” approaching workers outside Tata Steel premises with such offers.
BSPS is currently going through a restructuring process as part of a deal to stop Tata Steel UK – the schemes’ sponsor – from becoming insolvent. Members of the DB scheme have been offered the choice between staying with BSPS as it moves into the Pension Protection Fund (PPF) or transferring to a new scheme sponsored by Tata.
Some members are able to transfer their pension out altogether, and it is this group that has been subject to a flurry of attention from “unscrupulous” advisers and introducers, according to witnesses.
The FCA has visited sites in Swansea and Doncaster to remind advisers of the requirements and standards it has put in place around pension transfers, with more than 150 financial advisers attending.
Tomorrow, the UK parliament’s Work and Pensions Select Committee will conduct a series of interviews with individuals involved in the BSPS restructuring, including current and former employees, advisers, chair of BSPS trustees Alan Johnston, and the FCA’s Megan Butler.
Tomorrow morning we’re investigating what’s going on around the the British Steel Pension Scheme - a “honeypot for scammers” as @frankfieldteam has called it. With @TheFCA , steelworkers reps and two of the firms described as giving “questionable advice” https://t.co/SUq8R9pvb9— Work & Pensions Ctte (@CommonsWorkPen) December 12, 2017
Frank Field, chair of the committee, has described the situation as “a honeypot for scammers”.
In written evidence to the committee, the PPF said staff had “heard first hand from BSPS members of instances of unscrupulous practices, or as members themselves have described it, ‘vultures’ touting for business”.
Nick Smith, Labour MP for Blaenau Gwent in Wales, raised a question in the UK parliament last week, warning that “a steelworkers’ pension scandal is brewing”.
“My constituents are worried about making the wrong decision on pension transfers, and the Financial Conduct Authority is providing insufficient support to steelworkers at this crucial time,” he said.
Andrea Leadsom, lead of the House of Commons for the ruling Conservative party, urged Smith to raise the issue with the FCA.
Meanwhile, a group of financial advisers have clubbed together to offer free counselling to BSPS members. Dubbed “Operation Chive”, they have been helping individuals understand their options and – in a number of cases – avoid being misled into inappropriate investments.
Al Rush, an independent adviser who organised the counselling, said: “This is not about anything other than helping these people. They didn’t ask to be placed in this predicament, and we have the skills, and, I hope, the motivation and sense of compassion to undo some of the damage and jeopardy that a few people (and the system) have placed them in.”
Lifeboat fund hits out at ‘mischaracterisation’
In its evidence to the committee, the PPF raised concerns about its role being misrepresented by some advisers.
“In recent times we have picked up a number of instances where prospective entry to the PPF has been described as a ‘disaster’ for members or sentiments to that effect,” it told the Work and Pensions Select Committee.
Although the PPF does cap payments for people who have not yet retired, the fund sought to emphasise that its limits were not as large as some advisers had claimed. Only 0.2% of its 234,000 members were affected by the cap, it said.
“By definition, schemes only enter the PPF because they are unable to pay at least PPF level benefits,” the fund told MPs. “The average scheme transferring to the PPF since our establishment in 2005 has only been sufficiently funded to pay members 60% of their promised benefits.
“Memories seem to have faded of the pre-PPF position where members, in the event of insolvency, would simply receive their share of the underfunded scheme. In some cases, members received next to nothing.”