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Time for urgent action on 'another major misselling scandal'

15 February 2018

The Work and Pensions Committee publishes a report on British Steel Pension Schemes (BSPS). The Committee says, another major misselling scandal is already erupting on defined benefit pension transfers, and calls on the responsible authorities to take urgent action.

'Shamelessly bamboozled' into ongoing adviser fees and unsuitable funds

The Committee's ongoing inquiry into pension freedom saw worrying evidence that BSPS members have, over the past year, been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called "introducers".
The report describes how many BSPS members were shamelessly bamboozled into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees.
From March 2017 until now, the Scheme has processed 2,600 pension transfers equating to a total value of £1.1bn, according to data revealed on the  8 February by the scheme trustees. The average value of BSPS pension benefits transferred out was £400,000.

In around 20 cases the transfer value exceeded £1 million. The Committee heard of advice fees typically around 2% of the transfer value  - with and that the receiving funds sometimes imposed high annual charges and 'punitive' exit penalties ranging from 5% to as high as 10%.

  • British Steel Pension Scheme members let down by all concerned
  • FCA should ban contingent fees on DB transfers and sort out online register 

All responsible authorities must act now

Rt Hon Frank Field MP, Chair of the Committee, said: 

"I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing 'impartial' advice on a decision like this. It is bad enough failing properly to enforce the rules there are, but when the rules are this weak…?

Our financial services regulator has been rejigged and rebranded but I can't see much evidence of it working better for the people it is meant to protect: individuals making life-changing financial decisions. To propose, as the FCA did in July last year, abandoning the advisor presumption against transferring out of a gold-plated, stable, indexed pension scheme: it really makes you wonder whose side they're on.
Once again we find The Pensions Regulator fiddling while Rome burns, when it should have seen this rip-off coming. Given a choice between two defined benefit options worse that what they had been promised, with precious little support in making that choice, many steelworkers were drawn to the superficially attractive third option.

This is the first deal like this, but there will be more. All the responsible authorities must act, now, to stop more people being cheated. We will be asking all those involved to report back to us on the changes they will make, promptly, to stop this happening again."

Only half of defined benefit transfer advice meets FCA standards

Research by the Financial Conduct Authority (FCA), which regulates advisers, shows that only half of DB transfer advice nationwide meets its standards. This is far lower than typical rates for other forms of financial advice. For many people making a DB transfer, it is a huge and irreversible financial decision. 
The outlines of a deal to save the sponsoring employer of the BSPS, Tata Steel UK, have been in place since May 2017. The scheme's members were “woefully under-supported” in making a decision: by the sponsor company, the Government and TPR.
It was the responsibility of TPR, who oversee trustees and signed off the deal to create a new pension scheme, to monitor the situation and ensure that members were not left in the dark. All this failed.  

Recommendations for Financial Conduct Authority

  • Ban contingent charging – a key driver of poor advice. Genuine independence is not compatible with a charging model that only rewards advisers for recommending a particular course of action
  • Create an online register of advisers and their current status in providing advice that does not require “a degree and orienteering skills” to use
  • Do not -  as proposed in their 2017 consultation - drop the requirement on advisers to start from the presumption that a DB transfer is a bad idea for their client: in most cases it is. In light of the BSPS experience abandoning this safeguard looks reckless. 

Recommendations for The Pensions Regulator

  • TPR conduct a review, listening to BSPS members and learning the lessons of how they were let down
  • Ensure all schemes in future are equipped to give members of full picture of the options they are choosing between 

The Committee also calls on Government to bring forward proposals for a system of deemed consent in the long awaited white paper on defined benefit pension schemes. This should enable the bulk transfer of members from a DB scheme, certain to enter the PPF, into an alternative scheme providing unequivocally better benefits than the PPF to those members. Such a system would have been of benefit to many of the 25,000 BSPS members  - many of them old and frail - who did not respond to the scheme consultation.
Since the Committee's inquiries into BSPS began, the FCA has gradually picked off firms providing unsuitable advice to BSPS members, and announced a review of all UK firms providing DB transfer advice. This is welcome, but too late for BSPS members.
The case of one advice firm and its associated "introducer" firm examined by the Committee has been publicised. Darren Reynolds of Active Wealth has produced a defence of his practices, published as evidence on the Committee website, but which has been roundly denounced in a series of individual letters to the Committee Chair from those advised by the firm. These will be considered by the Committee and possibly referred to the FCA for further investigation.

Further information

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