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.