The FT is reporting increasing frustration among steelworkers in Port Talbot as they get called into public meetings with the FCA to find out about mis-selling compensation.
“The cowboy advisers are laughing in their villas while we are having sleepless nights,” a former member of the British Steel Pension Scheme on the UK’s biggest #pension transfer mis-selling scandals in recent years. https://t.co/GJFD1blpoF
— Josephine Cumbo (@JosephineCumbo) October 13, 2021
The compensation system looks a mess. It is based on rules laid down in the mid 1990s in the wake of the first great pension mis-selling scandal , also centered on the transfer of DB pension rights.
Al Rush, who has been helping steelworkers understand their position, has struggled to understand the arcane rules that lead to qualification for compensation. He tells me that there is anger at compensation rules that are not clear and determinations that appear to steelworkers arbitrary and unfair.
One steelworker that the FT spoke to had been told that he was not eligible for a claim on FSCS as he had sacked his adviser at the time of assessment. Others have found themselves ruled out because their advisers have gone out of business. Al Rush tells me that some advisers are trying to resign their adviser fee agreements to limit liability to claims against them from the Financial Ombudsman and the risk of being barred from further work by the FCA. Al is having to tell steelworkers to continue to pay advisory fees rather than lose their chance to claim.
Meanwhile the FCA are encouraging claims through the FOS against advisers and FSCS, while FSCS seems set on limiting compensation wherever it can. The messaging is – to say the least – mixed.
We are now four years from the BSPS “time to choose” window which resulted in nearly £3bn being stripped from the scheme and paid (typically into SIPP accounts). to personal pensions. The management costs of the personal pensions are high (the average advised SIPP costs an investor 1.9% pa in management and advisory fees). The worry is that many steelworkers are exposed to markets and to high fees when they could have been anticipating a wage for the rest of their lives and for their spouse if their partner survived them.
This is why the FCA reckoned 48% of the DB transfers they looked into after “time to choose” were made with unsuitable advice. The BSPS transfer mess is part of a bigger problem with transfers which is graphically illustrated by the FT
The peak period of transfer activity occurred between the last quarters of 2016 and 2018, putting BSPS’ Time to Choose at the heart of the problem. At the time advisers could charge all fees and costs to the transfer value, a practice known as a contingent fee. This practice has since been banned by the FCA as it encouraged advice to transfer (effectively no transfer no fee). Many steelworkers seemed unaware of the impact of the fees charged to their transfer values , just as they were unaware of the jeopardy they were embracing by investing in higher risk funds.
Fortunately, despite the market shock of 2020, market conditions over those four years have been good and those exposed to equities , have done well. Al Rush tells me that many of the steelworkers he talks to are delighted with the growth in their funds. Meanwhile they are being told that the amounts stripped from these funds by advisory and fund management fees are claimable as compensation where the advice can be proved to be unsuitable.
Many will have been well advised (52% of transfers were made for the right reason) but Al worries for many steel men remain ill-equipped for a market downturn and unaware of the risks they are taking. They are increasingly confused and angry about the meetings they are being dragged into.
Josephine Cumbo writing in the FT reported from an FCA organised compensation meeting in Swansea.
“I haven’t got a clue what today is about,” said one 56-year-old steelworker attending the event, who was advised to transfer a £290,000 secure pension into a risky stock market-based plan in 2017. “I just followed my mates who were getting transfer advice.”
The delays in getting to grips with this problem are hard to explain. Megan Butler of the FCA was first quizzed on what was going on by the Work and Pensions Select Committee in early 2018, since then we have had the Rookes inquiry and a number of public meetings organised by Al Rush to publicize the problem. These meetings have seen MPs travel to Port Talbot and steelworkers travel to Westminster.
Local MPs such as Stephen Kinnock are now calling on the National Audit Office to investigate the value the FCA has delivered. I support this but hope the audit will also be on the FOS and FSCS who look increasingly a part of the problem.
Meanwhile , the fundamental problem for the steel workers remains. They have no pension, only a pension pot. Until a way is found to restitute a pension , the underlying problem remains; – steel workers are not pension scheme managers.