The plan presented to the FCA today by @RAF_IFA will see the BSPS make payments out of the fund to members badly advised to transfer.
A payment of this nature and scale would be new territory for U.K. pensions.
5/5
— Josephine Cumbo (@JosephineCumbo) February 26, 2019
“Scheme pays” is normally thought of as the way of reducing a consenting member’s pension in return for the trustees picking up the tab for a tax bill arising from a substantial increase in benefits.
But in Al Rush’s bold move, New BSPS is being asked to use a proportion of its substantial assets to recompense former members of Old BSPS, who were tricked out of the scheme in favour of various hokey cokey investment schemes.
There are two questions here. Firstly – would members of BSPS agree to have the security of their pension payouts reduced to help out their colleagues? Secondly , will the Trustees accept that there is a residual responsibility on them to recognise that a wrong should be righted.
By the letter of the law, I am quite sure that there is no legal obligation on the trustees and it may well be that the Pensions Regulator forbids the payment on what would be an additional transfer payment (there is no question of reinstatement).
But I think that Al Rush and his clients have a strong case. Not only were they let down by the Regulator, which has a statutory duty to protect members from the shenanigans of Port Talbot , but by Trustees who wilfully ignored arguments to put in place a transfer advisory service prior to “Time to Choose”.
I can say this of the Trustees as I made that recommendation to the trustees in the offices of their advisers (WTW) and my idea was rejected. I cannot say why it was rejected but I and my colleagues still await (some 18 months after making the representation) a formal response either from the Trustees or their procurement team.
It was not a case of the Trustees being in unchartered waters, we already knew by mid 2017 that the lethal combination of falling discount rates and the newly discovered ability to charge clients on a contingent basis, made unlocking CETVs a frictionless bonanza for lead generators, advisers, wealth managers and the whole panjandrum of hangers on who could feed off average transfer values of over £400k.
If the Trustees had looked, they could have seen evidence of the bubble-bubbling of transfers in the ONS tables published quarterly throughout 2017. Though the trasnfer bubble was most bloated in Q1 2018 (when the majority of the 8000 transfers from BSPS were paid out), the warning signs were very clear and if the Trustees weren’t looking, neither were their advisers.
If the Trustees had spent time on the Facebook pages of their members, they could have seen exactly what was going on. I first posted of the danger signals using this poll which was taken amongst members when Time for Choose was just opening.
Not negligence, but a missed opportunity
There was , in the early part of 2017, a complicity between all parties in the institutional pension world , that transfers were not a bad thing.
Since transfers were paid out on a best-estimate basis and schemes were valued on corporate balance sheets on a much tougher basis, every transfer taken actually relieved the corporate balance sheet of pension tension. Ironically, this was precisely the message that the Pensions Regulator was sending to employers and trustees alike – de-risk, de-risk, de-risk.
If BSPS could be floated off the rocks it found itself on when the Regulatory Apportionment Agreement was being drawn up in early 2017, then a healthy rate of transfers was much to be desired.
Nobody was thinking then of the possibility that 8000 BSPS members would transfer out over £3bn and of the uproar this would cause throughout Great Britain.
Ignoring the signals was a fundamental mistake made by the Trustees and their advisers. It was a huge missed opportunity.
Why I support the approach adopted by Al Rush
I’ve seen Al’s recommendation and commented on it. I have pointed out that any payments to his clients would be discretionary and would need approval. I also think that they would need the approval of New BSPS members ( a test of member solidarity if ever there was one).
But I think that Al has right on his side. Had he not made the fuss he did in Time to Choose (and nobody likes a trouble-maker or a teller of truths), then the situation in Port Talbot and elsewhere would have been much worse.
Those who have been ripped-off (and no-one is now doubting that the levels of poor advice were huge), were let down.
Kind words and solicitations are not enough.
If the security of BSPS2 member’s pension payments would be reduced, I can’t see many of them agreeing to it as they have already given up a heck of a lot of inflation protection.
When it came to the BSPS ‘Time To Choose exercise’ the Trustees sent me all the necessary information and in a timely manner. This gave me enough time to speak with financial advisers and do my own research on the subject in order to find out what was right for me. I then decided to move into BSPS2 rather than transfer out.
What I could see in my own workplace (Tata Steel) is that when a few people received their CETV’s the word started spreading very quickly on how large the amounts were (I think the average was approx £350,000 – £400,000). This created a knock-on effect and the next thing I was hearing is that it was a ‘no brainer’ to transfer out. Then the mass exodus started.
I would have thought that for those who received poor transfer advice, any compensation should be paid from other sources e.g. the Financial Services Compensation Scheme?
This is the most ridiculous idea ever thought of, a pension fund compensating people who have transferred out and now have nothing to do with the BSPS2. I have already taken hits on pre 97 pension increases swell as RPI to CPI reductions, so why should the security of my pension be put in jeopardy for those who couldn’t wait to transfer out but have now been ripped off by unscrupulous IFA’s. The financial industry should compensate the people for their losses not Pensioners of the BSPS2.
Henry,
Unusually I think you are totally wrong to suggest that a new pension scheme should be held accountable for the losses caused incurred due to unsuitable advice by IFAs. The Trustees followed guidance which prevents offering financial advice or recommending advisors. The transferees accepted the cash sum and relinquished all ties and obligations from BSPS1.
“I can say this of the Trustees as I made that recommendation to the trustees in the offices of their advisers (WTW) and my idea was rejected. I cannot say why it was rejected” – look at FCA guidance.
“I also think that they would need the approval of New BSPS members ( a test of member solidarity if ever there was one)” – I will be writing to the BSPS2 Trustees (not the closed BSPS1 Trustees) to express the view of the members in BSPS2 from a large sample on our group. So far it is heavily against.
Stefan
Stefan,
You could also send the BSPS2 Trustees all our comments on this blog?
Henry, could you please provide a link for Al Rush’s recommendation in full?
As it has been described in this post, it seems like a terrible idea and I agree with the other posters so far (Robert, Andy and Stefan).
As you respect Al Rush, I would be prepared to read the whole of his suggestion first before cementing an opinion.
You may remember that the timing of communications and the lack thereof (and the contradictory information given by the helpdesk) is something I bitterly resented the BSPS trustees/administrators for. It was a big part is whipping up a frenzy of interest in people wanting to transfer, just to have the cash in their hand (metaphorically).
I think what is being conflated here is sympathy and ethics. Just because you feel bad for someone doesn’t mean that everyone else owes them anything or indeed should do anything for them.
In my opinion the BSPS2 trustees should politely decline to participate as they have a duty to look after their members and pensioners ONLY.
Well said DC.
I and many other BSPS2 members would be very interested to hear your opinion.
From what I have read so far, this is the two sides of the matter……….
“They see the BSPS2 as a source of funds and seem to think it is fair and morally right that the Trustees cough up some help (even though they have no legal standing). We clearly don’t. Al has made a claim that the transferees did not get anything from the £550 million and should get a pro-rata payment. This is wrong – the CETV reduction dropped from 8% to 5% because of this cash settlement”.
“The entire process was flawed from start to finish. Advisers who adopted industrial levels of transfer activity were as much to blame as the BSPS2 Trustees. The scheme is doing very well, and if no one is disadvantaged, the Trustees should be prepared to assist financially”.
Hopefully Henry will provide you with a link for Al Rush’s recommendation in full before making your opinion?
I’m sorry guys- I am in Sri Lanka with limited time and connectivity. I have the last draft of AL’s letter but no permission to share. Suggest you DM @raf_ifa on twitter
Hi DC,
Do you have an email address I can contact you on?
I have the information that you require.