I have on my google drive a piece of research conducted by one of my friends – a steelworker himself – who was one of the main pillars of support for steelworkers faced with the hard choice of whether to have benefits paid as a CETV, from the PPF or from a new version of the British Steel Pension Scheme.
You can now read more about this on Maria Espadinha’s excellent article – many steelworkers spent less than 2 hours with an adviser.
It’s not my research to share so I won’t be overly specific. The research has garnered a response from 176 steel men who transferred over the BSPS “Time to Choose” campaign.
What is different about this work is that it is not focussed on Port Talbot but represents the dispersal of deferred BSPS members accross the country. So there are large numbers of respondents from Teeside, many from the Welsh borders and quite a few from South Yorkshire. The rest are scattered around the country and indeed the globe. So the research is representative of decisions taken across the deferred membership of BSPS.
I very much hope that the researcher will share the research with the FCA and with the wider public.
The second point to make is that the vast majority of people responding did transfer and that most of them are happy to have done so. There are a fair few who are unhappy and fewer who “may be” happy.
The research asked about the amount of time spent with an adviser over the decision. Again there is a wide dispersal of answers with a seemingly even split between spending less than two hours and those spending two to four hours, a handful spent more than four hours. The results do not suggest that advisory were piling it high and selling it expensive.
Similarly the research does not show a wholesale use of “vertically integrated” solutions. We can see from the data gathered – where the money ended up – and the vast majority ended up with insurers and not in SIPPs.
Fear not greed
Finally we can see why people transferred and the vast majority of answers remain because people had “no confidence in the British pension scheme“.
This final point is the one that should be most worrying to the Pensions Regulator. Although most of the flack for what happened at Port Talbot has been directed at the FCA, the root cause of the problem was not advisers, or even the pension freedoms. For the majority of the people in this survey, the problem was the ability of the British Steel Pension Scheme to pay its pensions.
Why was confidence in the scheme so low?
It is hard to avoid the conclusion that something went badly wrong in the promotion of BSPS2 (New BSPS) to the deferred membership.
That 8,000 deferred members transferred away from a solvent scheme well over £3bn , suggests that the benefit of staying in the pension scheme were undersold. If the Pensions Regulator thinks that the decisions taken by members on transfer are outside its scope, they should think again.
One of the pillars that TPR is built on is “protecting member interests”. Quite clearly, a high proportion of the members of BSPS felt no confidence in the scheme they were in and continue to feel that way , two years later.
TPR can point to a lack of confidence in the sponsor – TATA- but that is to surrender the point of the Regulatory Apportionment Agreement, which was designed to protect members if New BSPS succeeded or if it failed. The PPF benefits bought by taking no choice or if New BSPS collapses, are still much better than the annuities that can be purchased from CETVs.
It is only if steel workers genuinely wanted to manage their pension rights from a drawdown policy, that CETV made any sense at all. And yet, many of the deferred members voted against the strong steer from the Trustees and the Regulator to stay put.
Why was confidence in the scheme so low? The answer is blindingly obvious, no-one was listening to the deferred members (except financial advisors).
Advisors to blame?
Clearly what went on in South Wales was a disaster and the research shows a higher number of people unhappy with the transfer decision they took – living in South Wales, than satisfaction levels elsewhere.
But the research does not show as high a level of dissatisfaction with the advice offered as I would have expected.
People have a right to a CETV if in a funded pension scheme and people have a right to shape their retirement income as they choose. We should not forget that many of the people who transferred remain happy with the choice they took.
Nevertheless, the problems with advice may be for the future, the research shows that only a handful of steel workers transferred having paid a fixed fee, the vast majority did not have to find the cash for the advice, it was found for them from the transfer value. There is a chance that in five years time, were this survey to be repeated, the damage done by high adviser charges would materially change satisfaction levels in advice. However, the evidence that I have before me does not suggest the majority of those advised feel they got a bad deal
That said….
The question TPR should be asking, is whether it should allow itself to feel exonerated by the failings in advice in a minority of cases and I think the answer is “no“.
Managing public sentiment isn’t easy but…
For me the Pensions Regulator has still a lesson to be leaned from BSPS. It is evident in the research I am looking at.
People can be easily spooked to transfer away from occupational schemes and be frightened by the idea of the PPF. It is easy to do this because of high transfer values boosted by the de-risking that the Pensions Regulator’s current funding regime is encouraging.
The consequences of low levels of perceived support for occupational DB schemes is a continued flight to advisers who are happy to offer easy to pay for advice to take CETVs in a painless way.
Isn’t it time that tPR and the FCA did something not just to change the behaviours of advisers, but to encourage people to want to stay?
By which I mean some positive intervention by tPR to promote the benefits of a scheme pension.
Sadly, I see this as low down the list of tPR’s priorities, much much lower that its obsession with self -sufficiency and recent variants thereof.
So long as we have high transfer values, low barriers to transfer and low confidence in defined benefits, we will have high ongoing levels of transfers.
It is within the FCA’s gift to put an end to contingent charging, but it is in the Pension Regulator’s gift to allow schemes to remain invested in growth assets so maintaining reasonable discount rates and avoiding high transfer values.
Henry, one can only say what an excellent piece of work and why has it taken 30 years for this level of understanding to be promulgated. Pensions mis-selling by and large was a myth. The problem in the 80s is exactly as you stated here particular with the miners Pension scheme was concerned. There was a total lack of faith in the scheme to eventually pay the income that it promised. I know good IFAs who were driven out of business with fatuous compensation claims gerrymandered by a regulator that simply did not understand the mentality of the general public and miners in particular.
Independent financial advisors, once again, are being used as a whipping boy for the inadequacies of other professionals who fail to communicate adequately with those that they purport to look after in respect of providing for their future income in retirement. I know that from my own experience.
Will anyone listen? The answer is a resounding no! The professionals, so-called, have too much vested interest, too loud a voice and the regulator always need something to regulate or they lose their job. The fact that IFAs have to close their doors and the public have to lose independent advice is an unfortunate bi product in the regulator’s assessment.
I can only applaud the insight that has now been exposed by you in this excellent article and live in the hope that after 30 years someone will admit to getting pensions mis-selling perilously wrong where transfers out of funded pension schemes, in particular the miners and similar schemes are concerned.
The tPR works within the legislative framework for pensions. When it was designed, mostly before 2008, interest rates were positive in real terms. The idea was to get these pension schemes fully funded, based on the quality of their covenant. The weaker the covenant, more funding was needed, with the idea to achieve buy-out level.
I do think this idea has some value, because no private company would be around for ever, due to technological changes, disruption, or overseas competition etc. And as a result, a generous idea would be to have a fully funded pension at buy-out level.
In the past, pension schemes had some discretion on how much pension benefits could pay, buy being allowed not to index them if they found this necessary. It is similar with DB lite in the Netherlands or Germany. Looking at their pension system, it seems theirs worked better, and so far members were not that upset as inflation was low – this may change if inflation gets higher.
TSUK was not able to keep up with the required funding for its rather large pension scheme, the business suffered from low pricing of their product, and the RAA became inevitable. Who should we blame? TSUK? Maybe the Government as it did not offer enough protection from cheap Chinese steel? The Government wanted the Chinese Hinkley Point nuclear power investment!
The agreement involved either the choice of another pension scheme i.e. BSPS2 or the PPF by default, however pension benefits were cut between 15% to 40% in terms of cash equivalent.
The 8,000+ members who transferred preferred what they saw as a 5% cut, instead of a bigger cut/loss. They used their Statutory right to request a CETV – and it needs to be clear, the BSPS did not send out CETVs other than on request. In fact they were poorly prepared to deal with this situation! The transfers were the results of the existence of statutory rights to transfer!
For some steelworkers with only pre-1997 benefits, the BSPS2 scheme was not a ‘defined’ benefit pension scheme at all, as they lost the whole inflation protection, the only guarantee remained a ‘nominal’ amount.
This story won’t finish here, there are many other companies primed for disruption. Starting from the high street, to other big companies with high pension schemes, and a shrinking business like telecoms, banks, even oil and gas companies (as people move to solar and wind electric power) could be in trouble etc. It is important these pension schemes achieve buy-out level quick, before the companies get in trouble.
As a steelworker in TATA’s largest UK plant in Port Talbot which employs approx 4000 people, almost everyone I spoke to about their decision on whether or not to transfer out of the British Steel Pension Scheme was highly influenced by the very generous CETV’s they received and the ability to pass this on to their beneficiaries upon their death.
Second to this was a lack of confidence in TATA Steel who sponsor the British Steel Pension Scheme.
“It is hard to avoid the conclusion that something went badly wrong in the promotion of BSPS2 (New BSPS) to the deferred membership.”
Members were told in all correspondence that BSPS2 was dependant on “size and funding”. The Trustees told WPSC after TTC forms had been returned that based on returns to TTC that BSPS2 looked to be OK. Members were given no confidence confidence in BSPS2 especially as Tata UK, who had caused the crisis, was needed as sponsor.
Most of us in recipt of pension had Hobsons choice so tPR would have made no difference.
Deferred pensioners had a choice of Transfer from BSPS1 (a known), PPF (reduce 10% but better ER) or BSPS2 (unknown if it would go ahead with TSUK). I think tPR would not have had much sway in the choice.
The major issue was pre-1997 indexation which was seen as a major erosion in benefits which tPR shrugged off in all correspondence as a necessary part of BSPS2 creation. No compromise could be reached no matter what we tried to promote, eg for widows/widowers/dependents or one off uplift (as Halcrow).
tPR were seen as for the Trustees and seemingly ignored their primary fiduciary role to protect the interests of members.
Where tPR could make a difference is in its oversight of the RAA itself. There were fundamental mistakes in the Time to Choose program, chief among them the failure to provide a transfer helpline and promote the workplace pensions as a transfer option , But the decision to de-risk in early 2017 had the perverse impact of passing the risk to members – who took enhanced transfer values from lower discount rates and the rest is history. TPR couldn’t have stopped the flow of money but they could have done a lot to ensure it never started.