There were two regulators at BSPS

 

When the British Steel Pension Scheme (BSPS) was restructured in 2017, its members were given a set of options for what to do with their pension “pot”, including transferring their funds out of the pension scheme altogether.

Around 7,700 members, many of whom received independent financial advice to inform their decision, chose to take this option, representing about £2.8 billion of funds.

The Financial Conduct Authority (FCA), which regulates independent financial advisors, has identified that many steelworkers received unsuitable advice, and may have made poor financial choices and lost significant sums of money as a result. It has encouraged them to revisit the advice they received and complain if they have concerns.

The Committee will question the chief executives of the Financial Conduct Authority, the Financial Ombudsmen Service and the Financial Services Compensation Scheme on the activities the FCA has undertaken to regulate financial advice in the BSPS case, its plans for supporting steelworkers who may be entitled to redress, and the extent to which compensation is being delivered.

This is how the Parliamentary Public Accounts Committee introduce its inquiry into the BSPS transfer debacle (now in its fifth year).

I’m pleased to see Rich Caddy and Philippa Hann called to give evidence, both are close to the steelworkers and can speak for them. The third witness, speaking for the advice profession on 27th April will be Tim Fassam of PIMFA (a financial advice trade body).

The inquiry kicks off with a statement which contains a contentious statement.

When the British Steel Pension Scheme (BSPS) was restructured in 2017, its members were given a set of options for what to do with their pension “pot”

The pension which steelworkers were due was not considered a “pot” by steelworkers until recently, not until the option to take a transfer of a “cash equivalent” sum to the value of the pension started circulating among steelworkers. Prior to the restructuring, transfers of benefits via a “CETV” were very rare, pensions were part of the job and it was assumed that they were paid as a right. It was only when it became clear that these pensions were going to be less than anticipated, that the idea of the pension being paid by someone other than the BSPS Trustees , that steelworkers became troubled by choice.

The question that needs to be asked was

“why were steelworkers made to make choices they could not readily make without advice?”

The answer to that question can only be because the Pensions Regulator considered it a choice that could be taken by steelworkers with the appropriate guidance from the Trustees. The choice presented by the Trustees had nothing to do with “pots”, it was a choice between having a pension paid by the PPF or by a new pension scheme “BSPS2”.

The radical decision was to allow this new pension scheme as an option. The arguments for and against the new scheme were presented in terms of the various pension rules applicable to each and these were highly technical, faced with the choice of a reduced pension paid by a Government lifeboat fund and a reduced pension guaranteed by a sponsor that the steelworkers had no confidence in, the steelworkers felt they were faced with Hobson’s choice.

What the Parliamentary Committee need to consider is that , were it not for the Pensions Regulator making this choice available, BSPS would have gone into the PPF assessment and the members would have had no choice, not only would they not have had the choice of BSPS2, the deferred members wouldn’t have had the choice of a “pot” to transfer. 7700 workers would not have transferred, the FCA would not have had the hospital pass it was given and the advisory committee would not have had an opportunity which turned into a poisoned chalice.

In my view, the Pensions Regulator’s decision to allow a Regulatory Apportionment Agreement, was the cause of the entire fiasco. The Public Accounts Committee is investigating the consequences of that decision, not the key decision.

Here are my questions for the Pensions Regulator

  1. In considering the case for the RAA, did it properly consider the capacity of the BSPS membership to take the pension decisions of “Time to Choose”.
  2. Did TPR properly consider the likelihood of members requesting transfer values
    1. was BSPS properly prepared to administer the CETV requests in a timely fashion?
    2. was there advisory capacity to meet demand for transfers?
    3. was the FCA aware of the likely impact of the RAA on BSPS membership?

I think it unlikely that the team at TPR were focussed on this granularity. They were concerned about the strain on PPF of BSPS moving towards it in its entirety. They were concerned to extract as much from Tata and British Steel by way of support for existing promises as they could and I suspect they were concerned to ensure that steelworkers with big pensions, had an option to avoid the haircut of PPF which applies to larger pension entitlements (many of these members were involved in the negotiations). There was clearly an inside team working on the RAA that included, advising for Tata, the former CEO of TPR (2013-15).

The FCA , when called on to give evidence to Frank Fields’ Work and Pension’s Select  Committee in early 2018, seemed totally unprepared for what was going on in Port Talbot and Scunthorpe, suggesting that they were unaware of the scale of demand for transfers and for the limited availability of good quality advice on offer. They also seem to have been unaware of the steelworker’s trust in regulated advice ( a key factor that is often overlooked in this debate).

But while this unreadiness is an issue, it is only a part of the issue, one of the founding principles of TPR is to protect members and in my opinion it did not do that – it entirely missed the risk the RAA introduced – a risk that has resulted in 7700 transfers and £3bn sitting in pots rather than pensions. TPR opened a door that could have stayed closed.

TPR should be questioned about its role at BSPS – it cannot continue to allow FCA to shoulder all regulatory responsibility for what went wrong.

There are of course , more deep rooted questions that could be asked about the capacity of people to make decisions about who manages their retirement. Despite most politicians, regulators and pension experts being in one in suggesting that pensions are best paid by schemes rather than managed by private individuals, many people when asked to choose between what seems a large pot and a small income will choose the pot.

Advisers are conflicted when telling people not to transfer as they make more money if they do. We knew that from the first pension mis-selling scandal that this conflict is a permanent moral hazard.

It is up to the Pension Regulator and the FCA to work together in preventing harm to members. At BSPS , both failed, though only the FCA is in the dock. That is not fair on the FCA or FOS or FSCS – or the steelworkers.

 

 

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to There were two regulators at BSPS

  1. John Mather says:

    Does this commentary start at the wrong point?.

    If the income for life was the “gold plated pension” then why was there a need to restructure?

    Surely the restructure was because the scheme promise of collective pot management was unsustainable so failed.

    A new collective pot promise or a cash sum greater that the value of the sum of future payments the a self managed pot would have seemed a better choice over a similar but more complex promise to the failed structure this transaction is not tested as much as it should be. Test One

    Neither are the politics behind the creation of the restructure or the subsidies to the blast furnace industry after British Steel. Test two

    The choice of inappropriate high commission and risky or fraudulent funds is another matter and where this results in poor advice on the individual pot management Test 3

    Only test 3 gets the publicity as the IFA has no spokesman or effective trade body.
    .
    There is always a pot and sometimes a promise to imagine that there is a financial instrument without someone holding the risk is the fallacy.

  2. Martin T says:

    “…one of the founding principles of TPR is to protect members…”

    Really? I had no idea.

    I can see that tPR acts to do what it considers best to protect the accrued rights of members but I have yet to see evidence that it acts to protect members holistic interests, eg promoting the continuance of a DB scheme rather than encouraging it to close to accrual and be replaced with minimally compliant DC provision.

  3. Pingback: Why “sexy-cash” is still favored over pension income. | AgeWage: Making your money work as hard as you do

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