Al has published the following comment to this post on Facebook; I preface his submission with it.

Matter surrounding the targeting of British Steel Pension Scheme members at Port Talbot as they determine their pension scheme options.

Objective

The objective of this submission is to

• Better inform the Work and Pensions Committee about the problems I uncovered related to British Steel Pension Scheme (BSPS) steelworkers in Port Talbot

• Offer a series of solution related to their deferred membership of BSPS as ittransitioned to either British Steel Pension Scheme2 or PPF.

IMMEDIATE action point.

In mid November, the regulator, the Financial Conduct Authority (FCA), tasked the Pensions Advisory Service (TPAS) with establishing a dedicated help-line to better inform affected steelworkers and their dependents about their choices. This creates two class of scheme members – those who have been able to avail themselves of impartial counselling,and those who made a decision without it. The trustees should now extend the December deadline to allow all to do so, retrospectively if need be.

Executive Summary.

Main problems

• Unsuitable financial advice for many, into expensive and needlessly    complex solutions where there is an unrealistic chance of a positive outcome.
• Factory-gating – where opportunists, for their own financial gain, are plaguing the members
• Trade Unions conferring “approved” status on one financial advice company which charges excessively (typically 3% of transfer sum
• Unregulated introducers hosting “sales events” – linked to dubious businesses and business partners, which stand to grossly disadvantage scheme members.
• Unsupported modelling tools which are totally insufficient for such a major decision about their future retirement income.
• Time limits which are unrealistically condensed. If we want scheme members to make life-changing choices, they should not do so in an atmosphere of almost febrile panic.
• No consideration to vulnerability (including temporarily vulnerable members of the scheme due to the significance of the decisions that they are making).
• Inherent bias, caused by advisers’ feed being paid from the pension pot after the transfer is recommended. If the member moves to the PPF or BSPS2 the advisory fee has to be found by the member from taxed income and is VAT-able.
• Pressure on Trustees from volume of transfers
• Migration of advisers to South Wales from around country (with no local knowledge or ongoing servicing plan.

Remedies

When DB work has been completed it should be independently verified by a second person of equal skill and with no ‘skin in the game’.

• There should be access to independent counselling and guidance from the Pensions Advisory Service . Members could have been signposted to speak to them at the start of the process.
• Suitably verified advisers should have been accredited for carrying out this work by the regulators.
• There should be increased scrutiny by the regulator and trustees when events like this happen
• Member  rights to arrive at correctly informed decisions (such as PPF transition) should be enshrined into the  process.

About me

Alastair Rush, Independent Financial Adviser. Formerly an infanteer for over twenty yearswith the Royal Air Force Regiment and the ‘winner’ of a war disability pension. Founder of robo-advice proposition http://www.fiveraday.co.uk and http://www.echelonwealthcare.co.uk , serving Royal Air Force personnel

My IFA training was predominantly funded by the Royal British Legion. In part, because of that, and in addition to my private practice and hand in hand with the forerunner of MAS and TPAS, I have worked with organisations (in an impartial and voluntary capacity) such as Dept. of Work & Pensions, Lincs County Council, Rutland County Council, BAe, HMP Holloway, John Lewis Partnership, MoD, Honda (UK), Siemens, American Express, comparethemarket.com, Prudential plc and the NHS.

 I have delivered impartial and unbiased financial awareness training for thousands of staff. It informs me of the real issues facing people.

I take a particular interest in the delivery of financial advice surrounding Defined Benefit transfers. I organised a one day Defined Benefit pension transfer event in Peterborough in the summer, which was regarded, generally, as a particularly authoritative event.

It was at this event that I met Henry Tapper and we first discussed our thoughts on the matter of Defined Benefit pension scheme (DB) to Defined Contribution pension scheme (DC) transfers.

Background

We all know that low gilt yields have created a surge in the value of pension transfer values. That’s not news. And it’s fair to say that, generally, the advisory profession is already incredibly concerned about the subject. We know too, that the involvement of a few scurrilous practitioners can have a marked impact out of all proportion to their quantity, quality and reach.

On the morning of November 8th, Henry Tapper and I drove to Port Talbot to find out if there was any substance to the rumours I was picking up about poor and sharp practice from financial intermediaries who were, it seemed, targeting workers at the Port Talbot steelworks. If there was, it was my intention to report the facts to the regulators (TPR and FCA).

Why did I get involved? I went to school in Port Talbot and I know many of those affected.

Discussing retirement planning with a classmate was a surreal experience. Steelworkers are intelligent people. They are not though, financially sophisticated. They work hard and don’t have the inclination to stop and plan ahead, partly because they have never needed to.

They have always relied on the relative certainty of their wages and their defined benefits pension scheme. They like knowing what they have to rely on, it relieves them of needless burden.

It should also be remembered though, there is also a cohort of diligent, conscientious advisers who act and perform in the most professional of manner. I have been gratified to hear many instances of superb practice, particularly in the region and the town. IFA have their community at their heart of their businesses. It is incumbent upon us to serve ‘our’ people with as much diligence and honour as we can muster – and many have.

8 November 2017 – our day in Port Talbot.

On the day, we spoke with just seven people who were considering transferring out; they told us though, tales involving advice which concerned many of their mates which matched what they were telling us.

We did not go looking for dirt, we went looking for facts. There was no confirmation bias,none of us had anything to gain by reporting what we did. In the main,the seven told us that they had no idea that the practices they were being exposed to were wrong.

Five of them had been told to transfer out. I would have said that one was suitable fortransferring. I accept this might be down to reasonable divergence of valid adviser opinion.

However, the proper sales process did not seem to have been followed and somerecommendations to transfer were so obviously flawed, the result was almost perverse.

Why would someone, risk averse, in their early thirties not benefit from remaining in the DB scheme with twelve years of benefits, and then accrue DC benefits for the next thirty years (to wrap around it)? Why would someone, risk averse, on sick leave and in their late fifties with a mortgage and a non-working partner, transfer out?

We heard stories of people being charged up to £20,000. Since then, I have heard of oneman being charged a fee of 4% of his £650,000 ‘pot’ – £26,000. We were told of the entire sales process being wrapped up in an afternoon, and on one occasion, over lunch.

I listened as a man told me he went to a ‘chicken and chips in a basket’ sales seminar where the audience was told that the FCA ‘thought that an upfront fee of 2% was fair’. They weretold to bring all their scheme documentation and were seen, fifty at a time. I say ‘seen’ – “harvested” would be a more suitable word.

I mystery shopped a particularly aggressive adviser and was told that I would only becharged £1,500 to transfer ‘my’ DB pension pot because the job was easy and only requireda couple of forms to be filled. I was aghast. That adviser may be found on the FCA Registerand is a CII Chartered Adviser.

I was told that I qualified for free advice as a ‘thank you’ and that thereafter, I would only be charged £200 a year. What I was not told about, was the incredibly costly, unsuitable, corrosive and carcinogenic nature of the investments whichwould have bled my investments, and my future, dry. I have been threatened with legalaction by that particular IFA.

We were told of practice that I knew to be wrong; no consideration was given to future spending power, cash flow modelling, capacity for loss, and instead, far too much emphasis on simply capitalising on an opportunity to make a killing (two were told their money would be doubled in ten years).

We were told that advisers were travelling to Port Talbot from Newcastle and staying for a few days at a time and arranging nine appointments a day. In itself, there’s nothing wrong in traveling to make money and then working hard, but from the evidence I heard, the advisory process lacked coherence, structure and integrity. It was a production line, a battery farm.

There was no one acting as a critical friend for many steelworkers.

Other unsavoury aspects include:

Chicken n chips marketing events and factory-gating

Those doing it are viewed as parasites, they create resentment and they alienate theworkers from approaching more credible, genuine options. The refrain to financial services from these steelworkers would be ‘a plague on all your houses’ – and it would seem appropriate. They set the scene and the pace because, invariably, they are the first people seen once the workers finish a shift during which they have discussed this issue.

Registers. Telling steelworkers to go to a series of registers and online resources to look for

Registers; telling steelworkers to go to a series of registers and online resources to look for advice doesn’t work. They are occasionally out of date, and the problem is, many advisers who act in a scurrilous manner are on them anyway. Further, they offer ‘information’. Without context, they are of little help. I have been told by some workers that they simply have no faith in the FCA

Information and guidance is not what these men need. They need focused personal guidance.

I don’t know how to make steel, and reading Wiki for a week would not be a help if I ever had to commission someone to work with steel for me. So why do we automatically assume that offering a pension scheme pamphlet that simply besieges beleaguered minds further, is sufficient?

Sense of panic; we heard many times, workers saying that no one was talking of anything else, and on the Facebook page, people are desperately asking for the name of an adviser because others are at capacity. They are terrified – as we get closer to cut off time, there is a fear of missing out’ and a tendency to follow what your mate might be doing, especially if he is an opinion former within the workplace. If there are ‘x’ thousand members in the scheme, and half as many advisers in the UK, you can see the scale of the problem.

The steel workers are told that the scheme does not have the time to help themiv, but it still expects them to make a choice. It is beyond stupefying.

Ongoing servicing; I heard of one small firm that had gained sixty DB transfer cases. Harvesting business on an industrial scale is one thing, but servicing those clients on anongoing basis is quite another. I have little doubt that many of the firms which travelled cross country will quietly fade from the lives of the client, who doesn’t now that he can sack his adviser and save himself the money the adviser is hoovering up.

Vulnerable clients; the FCA has recently opined on vulnerability. The document is a great piece of work. But this is a case in point for putting into practice, the reams of theory itproduces. If many of those steel workers are ‘vulnerable’ what is being dome to ensure they are having their interests preserved?

Two man principle; when DB transfer work has been completed, it should be independently verified by a second person of equal skill and with no ‘skin in the game’.

Trustee scrutiny; if trustees are accepting at face-value because they are so overworked, unverified/inadequate evidence that the advice by an authorised standard has been met for a DB-DC transfer, is this a specific action point for TPR?

Rapid intervention ; it is depressing that the regulator (FCA) has acted with such torpor about this. I placed details of a series of wrong-doings a couple of weeks ago to it, and it has done nothing so far, to actively address those allegations..

Shabby sales practice; an event like this can make or break a town like Port Talbot. Exporting wealth by unscrupulous means can rip the heart out of a community already  reeling with job losses. Extra diligence should be given to localised events whichhave a disproportionate financial impact (to ensure as much financial capability stays withinthe area).

Counselling;  it must be mandatory that a workforce has access to properly  delivered impartial and objective counselling. Online guidance tools only go so far. We all want to know that someone can chat with us and reassure us, and inform us properly and listen tous, and that person has to be suitably credible. By contrast, the provided call centre isappalling beyond the vocabulary of most people.

Industry help; Independent Financial Advisers are an aggrieved and besieged bunch; sometimes rightly so. They are constantly under attack and persecuted by the prospect of the latest scandal in waiting. But they must wise up to the fact that there is absolutely no point in complaining about the latest disaster to befall the profession, if they don’t have the acumen to act far enough in advance and prevent it happening.

As a relative newcomer to this job, I am still surprised by the insular and self-serving nature of a profession which claims to have the best interests of its clients at heart, but which overlooks the bigger picture.

It must realise that serving the community from where the profession sprang up is not only a noble and honourable thing to do, but also aids ‘our’ rehabilitation and can act as a worthwhile means to raise one’s profile. It can also prevent a surge in various levies by actively working in a way that prevents disasters and scams like this happening. I have spoken with over thirty steel workers.

I do not offer advice; rather, I coach and counsel. I take into account their personal circumstances and chat with them for about half an hour. I do not offer them a formal personal recommendation, and usually, at the end of it, they have a solution. Invariably, they crystallise in their own minds what they are already thinking. They do not have an epiphany, I am able to allow them to clarify their own thinking.

Using solely centralised and standardised presentation material, advisers should step forward to breathe fresh life into community programmes of financial awareness and education. It should be validated as structured CPD and should form part of the syllable of initial adviser training.

Summary; the unruly way advisers have dealt with life changing decisions has been far short of acceptable. This pension action was on the cards two years ago, but nothing was done to properly prepare them for the transition.

We also know that it’s an easy thing to create, superficially, a plausible case to transfer –one which has a veneer of respectability, but which can consign a duped scheme member to a lifetime of poor outcomes based on high charges, poor performance and unsuitable advice. In summary, it’s a perfect storm just waiting to break.

Poor outcomes are not always based on scams. It won’t win me many friends to say so, but there exists within my profession a cohort of advisers which sees (for instance) BSPS clients as baby gazelles at a watering hole. Some exploitative advisers offer, superficially, advice which would pass a compliancy test, but which most certainly would not pass a sniff test.

There is little point in professionalism being defined by post nominal letters after one’s name if we still allow excessive charging and gratuitous profiteering.

Conclusion/recommendations; employers and trustees must embed the retirement interests of the employees at the heart of the process, at the outset. It should be mandatory that a formal programme of education and counselling be considered (and if necessary) established the moment it is conceived that the pension scheme might be in trouble and possibly, the subject of a transition to PPF or other new form. This counselling should extend afterwards, too.

Activities such as factory gating are appalling. Into the void of uncertainty, will always step those trying to profiteer. Instead of the blackness of this void, there should be a white light shining on an active presence of the Pensions Advisory Service, suitably verified advisers, and a publicity campaign offering context (not just ‘information’) and warning of scammers.

If matters can be reversed for the steel-works of BSPS, they should be. If not, we should be mindful that there will be more schemes coming under similar stresses. This offers us the chance to establish a protocol which will prevent that.

November 2017

This submission can be found on the DWP select committee page