Nick Smith MP is right – the British Steel pension transfers are a special case.

MP Nick Smith is right to renew calls for a specific redress scheme for former members of the  British Steel Pension Scheme. The overall complaints of steelworkers are reckoned by FOS to be valid two thirds of the time but when it comes to whether the advice to transfer was suitable- almost all of the cases are being upheld. Jo Cumbo is right to call this second stat “staggering”.

There were over 7000 transfers, only 22% of them are in the compensation pipeline .

It is reasonable to expect more people to come forward, not least because the FCA is now promoting steelworkers to bring their cases to FOS.

The FCA are already treating BSPS transfers as a special case. This blog argues  that so should FOS and FSCS.

I had my meeting with the National Audit Office who are close to completing their inquiry into the regulation of the transfers that mainly happened in a short period in 2017-19 named the “time to choose”.  The NAO say they are likely to report in March.  In my view there are five strong grounds for treating the BSPS transfers separately and giving them a redress scheme of their own

  1. The management of the Regulatory Apportionment Agreement. The RAA appears to have been  an expensive mistake. It originally would have benefited a few well pensioned executives within BSPS who would have lost most if BSPS had gone into the PPF and Tata not supported it. As it happens, Tata did support the scheme and it came out of the PPF rendering the RAA and the establishment of the new BSPS unnecessary. But by giving steelworkers the choice of PPF and BSPS, they kept open a window to transfer which panicked members into transferring , fearing it might be shut. Had the scheme gone into the PPF assessment without the RAA, it would have been closed for the assessment period to transfers – and the panic would not have happened. Hindsight is a fine thing and there would have been a lot of anger at Tata , the Pensions Regulator and the BSPS Trustees , had the RAA not been set up, but without it, transfers would have been available only after it exited the PPF assessment on November 9th 2021. Ironically, the highest pension members who transferred to new BSPS may have been better off staying in the original scheme.
  2. Transfer values rocketed prior to Time to Choose. The Pensions Regulator required the Trustees to de-risk the scheme assets in advance of it entering PPF assessment. The de-risking reduced the discount rate applied by the actuaries and this meant that CETVs could in some cases double,  which they did. This made transferring more attractive  It has not been properly spoken of, but Tata’s support for the pension arrangements is quite at odds with steelworker’s expectations and turns out to have made both the de-risking and acceleration of transfer values unnecessary. The cost to the scheme of underestimating  Tata’s covenant has been passed on to Tata in demands for more funding – demands that have been met at a cost to investment and jobs. This is relevant to all steelworkers whether they took the transfer or not.
  3. The Trustees were blind to the impact of higher CETV’s. Both in my discussions with the trustees prior to Time to Choose and in a meeting with the Chair subsequently, the trustees saw no historical evidence of high transfer take up. But this was because IFAs could not recommend transfers at the old CETV rates (BSPS was run historically run with higher discount rates which calculated  CETVs in cohorts , making them less attractive, especially to younger members). The Trustees chose not to provide practical help to members thinking of transferring, instead offering a guidance helpline that talked to the different expectations of BSPS and BSPS2. The Trustees were out of touch with their members expectations and blind to what now seems obvious, that if you double transfer values, you court transfers.
  4. The steelworker’s expectations of what would happen if they transferred to         “BSPS2” or remained in the old BSPS were coloured by a long history of disillusionment with cuts in their pension entitlements. There was  a perception that Tata were not supporting the scheme. This view made them vulnerable to suggestions by advisers that transferring out of the scheme was a “no brainer”. Many steelworkers – especially those who had lost their jobs as a result of redundancy programs, were only too pleased to listen to such arguments. The vulnerability of steelworkers was underestimated, they should not have been exploited by advisers selling transfers , a failure both of advisers and of those who designed the RAA. Access to this advice was all too easy.
  5. Access to poor advice was easy. In Scunthorpe , one firm set up in the Union offices. In Port Talbot , respected steelworkers were paid to get colleagues to chicken dinners where they were sold on the idea of transferring by unscrupulous advisers. There appears to have been a blind eye turned to what was being said by unions and management. Indeed there is evidence that payments for access were being received by people who had the trust of the less financially confident. There is also evidence that Darren Reynolds of Active Wealth sat at the top of MaPS, list of transfer advisers, inadvertently endorsing him and his activities. Far from providing  a list of reputable advisers, the trustees set out a pathway to many firms who have subsequently had their transfer permissions removed, these firms have generally folded leaving members to be compensated by FSCS (with further issues)
  6. Social media stoked the flames. There was ample evidence before , during and after the Time to Choose that herding was going on. This is from their Facebook pages early in the crucial decision period. This blog reported the impending problems at the time as did journalists from the BBC and in particular the FT. The steelworkers were organising themselves on Facebook because they couldn’t find another forum.
  7. The existing workplace pensions were ignored. There is a general question as to why this was not picked up by Trustees and Regulators and a more particular question as to why Tata and British Steel in Scunthorpe, did not offer their workplace pension schemes as a value for money alternative to the solutions being advised on.
  8. IFAs misrepresented themselves as “managing the money”. Many IFAs had three opportunities to take money from the transfer values. They could take fees for advice (paid contingent on the transfer happening), they could take ongoing fees for financial planning (supported by adviser charging arrangements from some providers) and they could take further fees by providing investment solutions which were paid on top of advisory fees. Many IFAs offered services that weren’t fulfilled or were fulfilled incompetently and members paid through the nose. The members were not in a position to tell if the IFA was good or bad, many assumed that FCA registration protected them against nus-selling.
  9. The FCA were not protecting members as they should. Megan Butler’s flustered testimony at the Work and Pensions Select Committee , showed just how little hold the FCA had on regulated advisers at the point of sale. I am quite sure that the NAO will have been told how the FCA only arrived in Scunthorpe and Port Talbot, months after the bulk of the transfer applications had been made. Caroline Rookes’ report has made this point. The steelworkers who had been wound up by Tata’s redundancies , previous pension cuts and the closing window of the RAA and pension cuts, given access to advisers who stoked the flames and often sold shoddy products , were not protected by the FCA when they needed protection.
  10. Compensation has been too slow and erratic; It is now nearly five years since transfers nearly doubled in the spring of 2017. Many members have chosen not to be compensated being happy with their decision and the advice they took, markets have generally been favourable and many steelworkers are resilient (as was proved in March 2020). But I suspect that the pipeline of compensation claims has been shortened by the time steelworkers see it is taking and by the seemingly arbitrary way compensation is calculated. We now know that the basis of compensation is often dependent on the actions of former members whose claims are curtailed if they have drawn down on their pots. The current compensation basis established by FSCS is regarded by Al Rush, myself and many others as not fit for purpose.

And generally the

…was a suitable scheme for almost all steelworkers. This is a most important point and it is seldom made. Far from being the train crash it was presented as by some advisers, BSPS was and is a well invested scheme. It’s administration was also good (though it was never designed to deal with so many transfer applications in the Time to Choose). This is why so many suitability claims are being upheld. Wage for life pensions are just what steelworkers in retirement need and for generations they were what they got. By comparison, a huge financial reservoir that can rise and fall from day to day by more than a monthly wage, is not so suitable for most steelworkers and their families. Underpinning the argument that those who transferred from BSPS have a general claim is that 98% of claims made on the suitability of pension transfer advice – have been upheld.

Taken together, I think these 10 arguments for treating steelworkers as special , make a compelling case. What happened at Port Talbot and Scunthorpe in 2017 will be unlikely to happen again, the lessons will no doubt have been learned. There remains a worry that the next episode will happen in a different way and let’s hope that (as with the pandemic) the risk of the unknown is better prepared for.

But right now, we have t0 do something to redress the wrongs that have been done to the former members of BSPS. I agree with Nick Smith that they need and deserve their own compensation scheme. BSPS was and is a special case. Undoubtedly there will be many authorised firms(including AgeWage) which will have to pay higher levies as a result and there is an argument that this special compensation should come from Government and general taxation, but this is detail.

The important thing is to put those steelworkers who were treated wrong – right.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to Nick Smith MP is right – the British Steel pension transfers are a special case.

  1. Stefan Zaitschenko says:

    Totally disagree that “the RAA appears to have been an expensive mistake” if we view this from the point of view of pensioners. It resulted in an increase in assets of £552M. This meant, for transferees, CETVs took a 3% lower deduction for insufficiency but the RAA primarily allowed the creation of BSPS2. At TTC no one knew if the assets would be sufficient for a Buyout – in fact we were told by pension industry insiders that they weren’t. Most under NPA had a choice of a 10% haircut or joining BSPS2 – a non brainer at the time. Whether the members who went to BSPS2 will be finacially better off than those who remained in the old BSPS/PPF assessment is moot in y opinion. I stayed in BSPS2 and kept my full pension as I am under NPA. I do not regret my decision and thank the Trustees for fighting for the RAA and BSPS2.

    Clearly, the sharks who took advantage of the pension transfereees are the worst of the worse and BSPS Trustees could have done more to assist members as we agreed when we appeared at Parliament. Howver, the primary job of policing the industry was with the FCA who failed badly.

  2. henry tapper says:

    It’s a fair challenge – I would push back and ask whether the RAA absorbed funds that could better have been invested more productively. it was certainly a no-brainer for the trustees at the time and provided security to deferred pensioners.

    • Stefan Zaitschenko says:

      The RAA forced the payment of funds. Without the RAA TSUK would have declared insolvent putting jobs at risk. The RAA was about far more than BSPS becoming BSPS2.

      • John Mather says:

        Stefan Are you saying that the motivation behind the first level of change was nothing to do with pensions but to protect TATA and yet another failed DB scheme.

        If so the elephant in the room escaped again in the noise of indignation about a few IFAs who bought the high commission funds that then failed. The bulk of IFAs who are competent, ethical and never touched the British Steel cases are now being asked to pay for this

  3. Stefan Zaitschenko says:

    John – of course the RAA was about Tata Steel’s obligations in the UK. Tata Steel wanted to sell off all their assets as announced in 2012. They sold Special Steels and Long Products but needed to shed their ties to the underfunded BSPS which was a perceived millstone around their neck. They had been paying £60m pa into the fund for many years. The underfunding for future liabilities was at least £1.5Bn. In 2016 TSUK asked the gov’t to allow the fund to reduce the benefits to members and the Gov’t began the consultancy. The 1995 act would not allow that. Brexit got in the way of any progress after the consultancy ended. It became moot when TPA/PPF/BSPSTrustees/TSUK began discussions on the RAA. The RAA prevented Tata declaring TSUK insolvent (and the fund without a sponsor) keeping TSUK open. The cost was £552M to separate them from obligations as sponsor to the old BSPS. BSPS2 was set up with much reduced benefits (obligations to members) so that there was ZERO financial risk on TSUK going forward.

    The FCA failed the bulk of IFAs who pay premiums for FSCS coverage not BSPS Trustees nor TSUK.

  4. Eugen N says:

    The problem regarding FSCS compensation which as an advisor we would have to pay on BSPS is that we are asked to pay more than what is fair. The BSPS1 scheme escape the PPF with a 91% or 92% valuation, and if I am correct BSPS2 has a valuation of around 95% of the cost of deferred annuities cost. If TSUK fails into administration, this is the level of pensions that could be secured with the existing investments.

    Ourselves we are asked to pay compensation at 100% cost of BSPS2 for deferred annuities. I do not think this is correct.

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