Bailey in front of the Public Accounts Committee
Nearly five years after the event, the former CEO of the FCA Andrew Bailey was called to the Public Accounts Committee to answer questions on the FCA’s unpreparedness for what is now known as the British Steel mis-selling scandal. You can watch his exchanges with the doughty Nick Smith MP on this link.
In 2017, the original inquiry by Frank Field for the Work and Pensions Committee had shown how unprepared the FCA were, Megan Butler attended a WPC meeting not knowing who it was that the FCA had stopped mis-selling. But as the notes of that meeting show, the FCA were putting out another regulator’s fires.
Watching Andrew Bailey’s grilling , it was hard to see why the finger was just being pointed at Bailey when the FCA were cleaning up somebody else’s mess.
Now Bailey is pointing to a poor regulatory framework that that he inherited; rushed policymaking, and rushed corporate restructurings for the BSPS pension scandal, should IFAs be picking up the full pension mis-selling bill for BSPS members?
— Josephine Cumbo (@JosephineCumbo) June 13, 2022
Noticeably absent from Bailey’s grilling was any mention of the Pensions Regulator who sanctioned the Regulatory Apportionment Agreement that led to the impossible choices offered steelworkers. The Pensions Regulator failed to oversee proper protection for members by the trustees who refused to sanction the resources I and others told them were needed to deal with the oncoming deluge of transfer requests.
Was the FCA up to it – was Andrew Bailey the right man to lead it?
During his appearance, Andrew Bailey claimed he inherited a regulator struggling to do its job because it touched the firms it regulated only once every 3 years. He claimed that rather than sitting on information , the FCA simply didn’t have the evidence to act quicker than it did.
This might be true, but it leaves unexplained why after the sacking of his predecessor Martin Wheatley in 2015, the FCA were still in a mess 2 years into his time.
He described his previous career at the PRA as ordered and process driven and painted a picture of the chaotic challenges he encountered from retail markets. He seemed to be saying he was in the wrong job. Becoming Governor of the Bank of England must have been welcome relief after years BSPS, the lengthy process of banning contingent charging and the grief he got from consumer groups. Now, rather than attending world economic summits , he found himself questioned by Nick Smith MP about Darren Reynolds and Active Wealth. It did seem a little surreal – but then so did Port Talbot in September 2017.
Running the FCA is a tough job and Andrew Bailey did not give the impression of being a man who enjoyed the challenge .
So what of the future?
Now, the other side of the National Audit Report on the debacle, the FCA is being held responsible for the redress working and it is finding that many of its sessions in Port Talbot and Scunthorpe are not packed out.
The FCA believes there are about 4,000 people it still needs to get to regarding BSPS and 75% have not complained. Bailey pointed out that steelworkers were split between those who were complaining about the advice given and those who even today, will not come forward with a complaint. As Al Rush consistently says, there are many steelworkers who prefer the money in their SIPPs than in BSPS. Here is the crux of the problem for the FCA’s redress scheme.
Technically, 46% of the transfers should not have gone ahead, but in practice many who could seek compensation, seem happy with their lot. To repeat a theme of this blog, the fault for the debacle was not just down to financial advisers, Time to Choose should not have happened.
Lessons learned?
The big lesson from BSPS is that decisions on pensions have consequences on members that need to be understood by both the FCA and TPR.. Lesley Titcomb , the then CEO of TPR, must accept the FCA were negligent in their duty to protect members and the failure to foresee a rush to transfer was more a failure of the Pensions Regulator than the FCA.
All the same, it was ludicrous that the FCA knew so little about what was going on over the summer of 2017 and that it had no local knowledge. The BBC, the FT, this blog and the social media of the British Steel members group, all pointed to a major financial incident. In the end , over £3bn exited a well run scheme into people’s SIPPs and hundreds of financial advisers are now unable to advise because of constraints upon them from their insurers and from the FCA.
There may have been structural problems with the FCA – as Andrew Bailey claimed, but that does not excuse the torpor of the FCA in the crucial months of choice. So while we may accept that Andrew Bailey was in the wrong job, we have to ask how he got there in the first place.
Never asked is why Tata were allowed to change the terms of the pension which then caused the members to be susceptible to opportunistic peddlers of high commission funds.
@John Mather
This explains why TATA Steel UK were allowed to restructure the British Steel Pension Scheme…https://commonslibrary.parliament.uk/research-briefings/cbp-8288/
Research Briefing
British Steel Pension Scheme
Published Friday, 20 May, 2022
“In 2017, the British Steel Pension Scheme (BSPS) was restructured after its principal sponsor, Tata Steel UK, experienced financial difficulty (lost £2 billion in five years). The scheme’s members were offered two options, moving to a new scheme with the same pension benefits but lower future increases or remaining with the original scheme and likely receiving a reduced pension from the Pension Protection Fund.”
Also….https://web.archive.org/web/20171005191328/http:/www.thepensionsregulator.gov.uk/press/tata-steel-uks-proposal-to-restructure-the-british-steel-pension-scheme-agreed-by-tpr.aspx
Tata Steel UK’s proposal to restructure the British Steel Pension Scheme agreed by TPR
Ref: PN17-48
Friday 11 August 2017
“The Pensions Regulator (TPR) has given initial approval to a proposal from Tata Steel UK (TSUK) to restructure the British Steel Pension Scheme (BSPS) and prevent the company becoming insolvent.
The proposal brings greater certainty for around 130,000 scheme members, secures a significant cash contribution to the BSPS and minimises the impact on the Pension Protection Fund (PPF).
This restructuring will be done through a regulated apportionment arrangement (RAA). The BSPS will receive £550 million from the Tata Steel Group, significantly more than it would receive in insolvency, and a 33% equity stake in TSUK.
Following completion of the RAA, the scheme will offer members the choice to either transfer to a new scheme (if it meets certain qualifying conditions) which will be sponsored by TSUK, or remain in the existing scheme which will transfer to the PPF.
Lesley Titcomb, Chief Executive of TPR, said: “We do not agree to these types of arrangements lightly but after several months of robust negotiations in this case, we believe that it is the best possible outcome for everyone involved in what is a very difficult situation.”
“TPR is willing to work closely and constructively with employers who face real challenges in meeting their pension obligations due to difficult trading conditions. Our focus will always be on protecting members and the PPF. We have worked closely with the scheme trustees and the Pension Protection Fund to maximise the value received by the scheme.”
“This proposal brings greater certainty for pension scheme members and unlocks the possibility of restructuring the company, which in turn could lead to preserving jobs.”
“We are pleased that the employer has also agreed to sponsor a new scheme which has the potential to deliver higher benefits than PPF levels.”
TPR only granted clearance to the proposal after ensuring it met strict criteria designed to stop employers abusing the RAA mechanism. This included that the business would have become insolvent within the next 12 months if the RAA had not taken place, which would have left BSPS without its sponsoring employer.
In order to continue to trade, TSUK required ongoing funding from the Tata Steel Group, which it was not willing to provide until funding challenges for the existing scheme were resolved.
Whilst Tata Steel Limited indirectly owns TSUK, it has no legal obligation to fund the BSPS or to continue to provide support to TSUK because it is not the statutory employer.
TSUK and BSPS trustees have initially agreed the plan, which includes the RAA. Formal approval to the RAA is expected to be granted by TPR in 28 days’ time, provided the decision is not referred to the Upper Tribunal by any of the parties who are directly affected by this decision. In addition, TPR has granted clearance that we will not use our anti-avoidance powers.
Once the RAA takes effect, the BSPS will be separated from TSUK. This will be followed by an offer to members to transfer to a successor scheme sponsored by TSUK before the BSPS enters the PPF. The ability to transfer to the successor scheme will be conditional on that scheme satisfying certain qualifying conditions, including its funding level and size.
Choosing to transfer to the successor scheme will give some members the potential to receive higher benefits than if they stayed in the BSPS on its entry to the PPF. Each member’s situation is different and depends on their personal circumstances and retirement plans.
The BSPS trustees will be communicating with scheme members in the next few weeks to explain member options and expected next steps. In the meantime, members should contact the BSPS trustees with any queries.
RAAs continue to be rare. If this RAA gains formal approval, it will only be the second that TPR has approved this year and the third in the last two years.”
Thanks Robert for that very helpful comment – I am sorry it got caught in “pending” for a while!
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