The FCA is in an awkward position as it consults on the redress it is looking to pay to British Steel workers who claim they were advised poorly to leave the BSPS scheme.
On the one hand they have disgruntled IFAs who see substantial claims coming their way for actions they were no part of or for advice that they feel they gave in good faith but is now questioned because of the special circumstances of the BSPS redress proposals.
On the other, they have disgruntled steelworkers who argue that the time elapsed since Time to Choose has allowed a toxic compensation culture to grow up in steel towns leaving many excluded from the redress scheme and subject to what they see as arbitrary and opaque payments from FSCS or through FOS. Although there is general acceptance of the redress scheme as fair going forward, the steelworkers argue that it should also cover existing claimants whose claims should be reviewed.
Sadly the compensation culture which both IFAs and steelworkers accept has developed in steel towns has led to a breakdown in trust, where trust has been earned. This has to be expected – it needs to be managed.
The FCA face a complex situation where IFAs are arguing with the benefit of five years hindsight, where markets and annuity rates are extremely fluid , where large numbers of claims have been settled and may need to be reviewed and where many claims will be made, some bogus and some genuine claims won’t be made, because of loyalty to advisers – or simply because some people don’t claim.
Recognising all these dynamics will be tough for the FCA, though many – myself included – will argue that its failure to act earlier , on market intelligence – is the cause of the problems it faces today.
IFAs organising opposition to the redress scheme.
Impacted IFAs have created a lobby group called the Association of Pension Transfer Specialists (APTS) who have produced a well researched argument that has been submitted to the Work and Pensions Committee in parliament.
It argues that a combination of a weakening employer covenant to support BSPS, improved CETVs as a result of a lower discount rate applied to scheme liabilities and consequently a low target return for the reinvestment of transferred money made it good advice for many members to transfer.
Despite this , the FCA continues to argue, that on the basis of the evidence it has collected from IFAs, 46% of the transfers were poorly advised.
Andrew Bailey, in his evidence to the WPC referred to the methodology cited by the APTS when explaining how the FCA assessed the quality of advice.
Bailey went on to explain that the FCA initially had no data on which to act. Most recently Nikhil Rathi, the new FCA CEO has reinforced Andrew Bailey’s excuse for FCA’s lack of proactive intervention prior to and during Time To Choose on the lack of real time data available to the FCA. Although the FCA has the power to create rules to get real time data,
collecting data from firms in real time would likely introduce additional cost for firms and is less valuable to us than the collection of aggregate data on a periodic basis…
firms with full permissions to advise on pension transfers are currently required to provide us with data about their activities (and those of their appointed representatives). These data include numbers of customers advised to transfer, transfer values and revenue generated from pension transfer advice. Collected every six months on a backwards-looking basis, these data can be used to inform our supervision of the market.
The FCA’s “backward-look” doesn’t however explain how long it took for it to come up with a redress scheme, nor indeed the delay in banning contingent charging , nor its inability to work with tPR on protecting members when the RAA was being drawn up, nor its inability to respond to the warnings from the media which grew throughout the summer and autumn of 2017. In short, the FCA were blind-sided by the shortcomings of a data driven approach that took no account of the vulnerability of Tata’s steelworkers or the urgent timescales of the RAA.
So the FCA may be considered by many IFAs to have colluded in the transfer activity it is now seeking redress for. Did the FCA lead them on?
We hear that 300 IFA firms are being invited to a meeting to discuss the proposed redress scheme which the FCA reckons will see 1400 former BSPS members get £71m in redress.
I expect IFAs to argue from the position laid out by the APTS and question how nearly half of the advice could be deemed to be poor when their analysis of the CETVs on offer suggests that they would generally be attractive.
Arguing from a moral high-ground – as the ATPS is doing , shows that the many IFAs who practice as transfer specialists take pride in their work and are extremely professional in their approach.
Indeed we know that a large number of steelworkers not only felt well advised , but got good advice. Many steelworkers who are being urged to come forward and claim against their IFAs are not doing so. We should not assume that because 46% of the advice was bad that 54% wasn’t good.
But in arguing from a professional standpoint , they risk making the same mistake as the FCA did. The transfers made by many BSPS members were made by people who often had no means to manage the financial opportunity and were, in any event, pressured into decisions by time, distrust and high pressure sales tactics. The professional arguments fall away when you talk to the steelworkers.
Not only were steelworkers not ready to understand what they were giving up but many were in no position to take advantage of the financial opportunity of the CETV.
The redress program is going to have to make extremely difficult judgement calls going forwards and do so, in the face of a determined and well organised group of IFAs.
And the IFA’s are only part of the FCA’s challenge. Now let’s look at what is happening among steelworkers.
Steelworkers arguing for existing claims to be reviewed.
The general position as I understand it , is that steelworkers are generally happy with the redress scheme. This is how Rich Caddy opens his response to the FCA’s consultation
The proposed redress scheme has been well constructed with the aim of seeking 100% redress for members who have not yet raised a complaint
The problems centre around those who have made complaints and had their claims calculated and paid either by the IFA or FSCS.
Claims against IFAs and against FSCS have been made and settled for some years now. These claims will not form part of the redress scheme which is worrying many steelworkers who see the payments made to them as arbitrary and inconsistent.
The FCA is now facing calls from steelworkers to include in the redress scheme,
- People whose compensation has been reduced by fees from lawyers and claims companies
- Steelworkers who have transferred but get no compensation for the cost of advice (due to having no adviser)
- Steelworkers whose compensation has been cut by a notional tax-charge (which isn’t understood)
- Concern that the compensation was calculated by advisers who the steelworkers are claiming against ( a conflict in their view)
- “Insistent clients” (who transferred despite being advised not to)
Not all of these demands are equally compelling, but the list shows how confused claimants have become. FSCS in particular, stands accused of being obfuscatory in explaining the rules for calculating compensation. Many claimants believe they have been tricked out of compensation to which they were entitled.
There has indeed been a growing “compensation culture” created by Claims Management Companies (CMCs). Steelworkers claim that this has been allowed to develop because of the slowness of the FCA to put in place a proper redress scheme.
And CMCs are now very much part of the problem. According to the Financial Services Compensation Scheme, 18% of compensation awarded to BSPS members through third-party representatives has been paid in fees to these firms. That represents £3.2m.
In his response to the FCA’s redress scheme proposals, Rich Caddy explains how the CMCs have prospered. (Rich is himself a steelworker).
Due to the slow response in recognising the harm, many members who were informed that something may be wrong with the advice were left unsupported. For a long period of time, the suggestion was that ‘You may have received unsuitable advice to transfer your pension, if you think you have received unsuitable advice, then contact the firm to raise a complaint‘.
So the option for members was either challenge the firm (financial professional) or recruit a solicitor or CMC (claims management company). The result of this is that members will only receive a % of the compensation they should have received.
Steelworkers confused by tax deductions
Infact, many of the steelworkers who have already received compensation through FOS are complaining that they cannot understand the basis of the payment. FOS claims are paid after the deduction of a 15% tax charge (the effective rate of tax the FCA’s FG17-9 guidance estimates would have been paid on the benefit foregone).
This 15% is not deducted from FSCS claims , which mystifies steelworkers comparing notes.
Steelworkers confused by lack of compensation for future advice costs
Further problems have arisen where advisory firms have walked away from clients they have advised, refusing further fees. The result is that such claimants are considered as “non-advised”. Many claimants have found their original adviser is no longer trading and are claiming against FSCS. They will not get compensation for future advisory bills unless they get a new adviser
The currently toxic atmosphere is making it hard for many steelworkers to get ongoing advice and will get no redress for advisory costs because they have no adviser to help them.
Calculation of compensation and exclusions
Understandably many steelworkers are as confused by their claim as they are about the original transfer. The claims were calculated by firms against whom the claim was being made and though these calculations are overseen by the FCA, the steelworkers want an independent check.
There is a feeling that advisers are using every trick in the book to minimise claims, including using the 15% tax deduction to reduce the advisory claim (which is not tax privileged).
Finally, some steelworkers who were advised not to transfer, found a way to get their money as “insistent clients”. Some claim that they were tricked into being insistent clients so that advisers would not be on the hook if trouble arose. These steelworkers claim that they had become so vulnerable that they should not be held responsible for their action.
Redress – progress or regress?
Undoubtedly the situation in Scunthorpe, Port Talbot and elsewhere is still toxic. The redress scheme will hopefully put on a lid on the sorry BSPS RAA saga.But it will do so at great cost to many existing IFAs who risk suffering substantially from claims.
The FCA are in a no-win situation , one largely of its own making. It now has to satisfy not just those still to claim but those who have claims made and paid, that they don’t feel happy with.
The progress out of the mess that BSPS has become is going to create a lot of collateral damage, but it is damage to the advice industry that could and should have been avoided. This blog has been saying as much for five years and is not going to stop now.
People who accepted redress as ordered by FOS, have got their compensation. Nobody asked them to use solicitor services. Their claims were not assessed in an English Court, they accepted the regulatory calculation of redress. Some were advantaged by it, some should not even forget they are smokers and were paid compensation like they weren’t smokers.
Agreed Eugene. I am not endorsing all these complaints
Alot of steelworkers are two years done the line with claims they are making and at the Time the FCA were too slow to Help these guys who have signed contract with CMC and can now not afford to cancel these contracts while fellow colleagues who chose to wait and see what happens with claims are lapping it up now FCA have got their act together and told everyone you do not need a CMC to help you thus keeping every single penny of compensation!!! The workers who started out two years ago face bills of upto £16k from there compensation packages resulting in them not been anywhere near put back in the situation they would have been if they had not transferred out! The FCA should be embarrassed with this whole ordeal and the mental well-being off many steelworkers facing these long delays!
I have clients (Steel workers) who were firstly advised in groups of 5+ to transfer out without any information being given to them on what they were giving up and what the possible outcome could mean when going into a DC scheme. Usually seen later, in 45 minute signing meeting, where they were given all the required regulatory information and ask to sign the transfer forms without time to read said regulatory information.
The same clients were then signed up, again in groups, to move from the adviser who wrongly advised them to a “better adviser” who put them all with the same provider, in the main, and advised them to use a CMC / solicitor, for their claim, “to make sure they had maximum compensation” (less a fee of circa 18%) and again, they were signed up in groups.
Having transferred over to my firm, I have advised many, who didn’t sign up to a CMC / Solicitor, to go direct to the FSCS or FOS and I can report; all the earlier claims, made directly with FSCS, have been settled mostly for £85,000 maximum payment. Some after starting life with FOS only to be moved to the FSCS when the firm finally went into liquidation (after selling the client bank to its parent company, go figure!).
In all of the dealings, trials and tribulations I have witnessed, whilst working with these clients, they are extremely vulnerable and have been traumatised by the whole episode since day one when they received the “Time to Choose” letter from the British Steel trustees who, in my opinion, are the most culpable for the tragedy which has ensued since that day.
I have seen honest IFA’s lose their livelihood, and their business, just before their planned retirement, simply because they took clients instructions and failed to dissuade the client their actions weren’t in their best interest. Yes, they could have walked away and refused to action the instruction but then greed can be a very effective persuader.
The FCA do not regulate against greed. The greed of the IFA, seeing a lifetimes income available in a year or less. The “greed” (as I have seen it stated) on the part of the Steel Worker, who is given the opportunity of a lottery win, early in his life, in exchange for his retirement security.
I have clients who do not wish to plan past the age of 75, as they don’t think they will survive much longer, working 30+ years in a Steel Works as a shift worker (my own father lasted to 67 after 28 years with British Steel). So are they right to plan for the here and now and worry about a secure income until they reach 99?
Many Steel Workers are happy they transferred out, have taken early retirement and feel comfortably off. They enjoy having the control of their funds and being able to splurge now, while their health allows and whilst they are young enough to appreciate the experiences. It isn’t a straight forward “let’s compensate everyone or continue to tell them they made the wrong choice until they do.
Having been an adviser for 31 years I have gone through life with many clients who have continued to build their wealth for too long. Finally, their health stops them working and they don’t have the energy or interest to spend their wealth, whishing they had taken the foot of the wealth accelerator far earlier than they originally planned. I would ask all Steel Workers to consider these points:
• Do you think you would have made a different choice had you been fully aware of all the necessary information required to allow you to make that choice in the first place?
• Did you know which option was best for you?
• Are you glad you transferred out? (not factoring in any compensation you have received or expect to receive)
• Had you been given a longer consultation period; would you have taken the time to find out all the necessary information required to make the right choice?
The reason I ask the above is, some of my clients do not feel they did the wrong thing, some are now fighting with their conscience as there is a prospective £85,000 sitting there to be picked up. Everyone FCA, FOS, FSCS, CMC’s, Solicitors and their work colleagues, or former work colleagues, are all telling them they should claim. Leaving them still vulnerable and traumatised by the ongoing twists and turns in this tragedy within our industry.
Thanks John, it is good to see you seeing this through the eyes of those who are on the wrong end of this argument. I know that Al Rush feels the same way, there is a real problem for the steelworkers which you have explained much better than I could. Perhaps you would like me to repost your comment as a blog?
Hi Henry,
please feel free to do so. I’m still using the quill i had in school so wouldn’t know where to start.
@JOHN PHILLIPS
That’s sound advice you’ve given your clients (steelworkers who received inappropriate advice on their DB Pension Transfers) to claim directly from the ‘FSCS or FOS’ opposed to using a CMC / solicitor and paying fees of circa 18%.
You’ve said that….”the British Steel trustees who, in my opinion, are the most culpable for the tragedy which has ensued since that day.” (that day being when the ‘Time to Choose’ letters were sent out).
I see things differently as there was plenty of detailed information given in the ‘Time to Choose’ exercise and there was also some before it as I’ve previously explained in this blog…. https://henrytapper.com/2021/08/20/transfer-advice-to-the-steelworkers-made-worse-by-trustee-failures/#comment-138697
Taken from the link….
”Robert says:
August 20, 2021
“Good to see that many steelworkers who received unsuitable advice are being or have been compensated.”
“On the other hand, many of my work colleagues at Tata Steel’s largest UK plant in Port Talbot are happy with their decision to transfer out of the British Steel Pension Scheme (BSPS). I was recently speaking with one of them who said that his £500,000 CETV is doing quite well and he’s been contacted by the IFA firm he went with offering £54,000 (in light of the BSPS transfer scandal) which he gladly accepted.”
“I opted for BSPS2 even though I had (and still have) the option to transfer out, but when you hear things like this it makes you think twice. Can BSPS2 really provide better benefits than this I wonder?”
“Unless you have serious health issues etc, anyone who now wants to transfer out of BSPS2 will find it very difficult as most IFA firms won’t touch BSPS2 transfers with a barge pole after all the bad publicity.”
“At the time of the BSPS ‘Time To Choose’ exercise in 2017, 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 UK who would sponsor the British Steel Pension Scheme.”
“I found the ‘Time To Choose’ options pack (sent to BSPS members in October 2017) very informative and it clearly explained all the details and options I had (including member examples) of moving into BSPS2, the PPF and transferring out. I felt like I was given enough time and information to make a good decision.”
“Also, the BSPS Trustee provided members with the ‘Time To Choose’ newsletters. Issue 1 being in August 2017 – this outlined our options, and issue 2 in November 2017 – this gave relevant information for pensioners and non-pensioners.”
“In the ‘Time To Choose’ booklet the BSPS Trustees said…..“You should think carefully before transferring out. You would be giving up guaranteed future pension income in return for income that might not be guaranteed and could vary depending on how you manage it. Even though transfer values can seem very large, transferring out is unlikely to give you as much total pension income as either the PPF or the new scheme, on a like-for-like basis.”
“Furthermore, in the June 2017 edition of TATA Steel’s ‘Delivering Our Future’ newspaper there was a Joint Statement from the National Trade Union Steel Co-ordinating Committee which said…..“While everyone’s circumstances are different, our pension experts tell us that scheme member’s benefits in retirement are likely to be better protected in BSPS2 or the PPF, rather than through transferring out.”
“At the time, the Financial Conduct Authority (FCA) said…”In most cases you are likely to be worse off if you transfer out of a defined benefit scheme, even if your employer gives you an incentive to leave. The cash value may be less than the value of the defined benefit payments to you and your eventual pension payments will depend on the performance of the new scheme, with the risk that the scheme does not deliver the returns that you expect.”
“After all these warnings (which were before the ‘Time To Choose’ period ended) the vast majority of BSPS deferred members chose to transfer out.”
I have an idea who one of the honest IFA’s you refer to is. You’ve stated that they lost “their livelihood, and their business, just before their planned retirement, simply because they took clients instructions and failed to dissuade the client their actions weren’t in their best interest.”
I can tell you from first-hand experience that this particular IFA (well respected in my area) who lost their livelihood and business due to intervention by the FCA regarding advice given on BSPS transfers, did not do much to persuade a client that transferring out of the British Steel Pension Scheme was probably not in their best interests!
Regarding what you’ve said….“I have clients who do not wish to plan past the age of 75, as they don’t think they will survive much longer, working 30+ years in a Steel Works as a shift worker (my own father lasted to 67 after 28 years with British Steel). So are they right to plan for the here and now and worry about a secure income until they reach 99?”
I can understand where you’re coming from. However, I’ve worked in the TATA Steel Works (formerly ‘Corus’ and ‘British Steel’) at Port Talbot for 35 years as a shift worker and I’m retiring later this year, aged 55. My father also did 33 years of shift work there before retiring over 20 years ago. He is 80+ years of age now, still reasonably active and getting on with life. We have numerous long retired steelworker friends who are in the same boat as him although some have died much younger which has quite often been attributed to heavy smoking or bad health habits. Saying all that, I can’t see many steelworkers reaching the grand old age of 99!
As a deferred member of the old British Steel Pension Scheme, I chose the new Scheme (BSPS2) instead of transferring out.
@ Robert
Hi Robert,
Thank you for taking the time to reply to my thoughts and observations on this matter. I will reply as follows:
“I see things differently as there was plenty of detailed information given in the ‘Time to Choose’ exercise and there was also some before it as I’ve previously explained in this blog…. https://henrytapper.com/2021/08/20/transfer-advice-to-the-steelworkers-made-worse-by-trustee-failures/#comment-138697”
I have read the information in the “Time to Choose” documentation and agree it is detailed and covers the options in an “easy to understand” format, for those of us who have the necessary ability to read and assimilate the meanings of undertaking the various choices outlined there.
However, I’m an IFA and have in depth knowledge in such matters, my clients, on the other hand, aren’t that well disposed to understand the ramifications of the choices they were asked to make. That is why they were easily persuaded, by unethical introducers and IFA Pension Specialists, that they should avoid the PPF at all costs, there was no certainty in BSPS 2 and, if they didn’t want to lose their pension fund, they needed to transfer out asap.
If the BSPS Trustees had taken the further step of holding Q&A meetings, where these choices could have been better explained, in plain English with sub-titles, for some, as the majority of those I have spoken with expected the IFA they went to, to do this for them. Added to these Q&A meetings; vet those advisers who were to be allowed to undertake BSPS transfers and I feel less miss-selling would have happened, more members would have taken other options and those who did transfer out, would not wish to complain.
The first BSPS transferee I spoke with was given advice by a lead generating non regulated introducer, the client only saw the Pension Specialist “adviser” for 30 mins, in his home, to sign the paperwork. He had been invited to a presentation, by said introducer, at a local venue and once he had been signed up, his work mates asked who he had gone with and promptly followed suit.
The reason for this, no one from TATA, BSPS, FCA or any other organisation, understood the opportunity for scams to be perpetrated as soon as word got out there was millions to scoop up by factory gating the BSPS members after the announcement was made.
But even more so, the fact that these guys are hard working trusting men who expected those in my industry, trusted with giving advice on life changing choices, to always act in the client’s best interest.
In regard to “this particular IFA (well respected in my area)” could be one of many and not just in one area. However, I have the same view that they “did not do much to persuade a client that transferring out of the British Steel Pension Scheme was probably not in their best interests!” as I said in my earlier reply, “they could have refused to act for them” if unable to dissuade them.
Finally, I’m glad to hear your father is well and still with you. My Dad worked at the clock face from 1953 to 1981, he was a blast furnace man, way before health and safety. Didn’t smoke, hardly drank and was quite active until his lungs gave out. He lased a few months on a nebuliser. Stopping work at 55 is a good call. The younger you retire, the longer your retirement.
Hi John,
Thank you for your reply.
I take an interest in Pensions and other Financial matters but I understand that some in my industry (Steel manufacture) may not have the same interest or understanding in such things.
As a TATA Steel employee I can tell you that there was plenty of messroom talk about the ‘Time to Choose’ exercise. As I mentioned in my previous reply….“At the time of the BSPS ‘Time To Choose’ exercise in 2017, 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 UK who would sponsor the British Steel Pension Scheme.”
This messroom talk created a knock-on effect and when some started transferring out after receiving advice from their IFA’s (who they trusted), the general consensus became a ‘no-brainer’ to do so.
As for the lack of confidence in TATA Steel, what some seemed to overlook is the fact that TATA acquired Corus in April 2007 in a transaction which created one of the world’s largest steelmakers, with a major presence in Europe as well as Asia. If this hadn’t happened it’s highly likely we would have been in a far worse position than that of deciding which option to take with our pension i.e. moving into BSPS2, PPF or transferring out. I have found TATA to be a very good employer and since they took over there has been a real shake-up in our industry (which it needed) and massive investment in some areas including Port Talbot.
As well as the BSPS ‘Time to Choose’ booklet and newsletters, the June 2017 Joint Statement from the National Trade Union Steel Co-ordinating Committee recommending not to transfer out, and FCA warning on DB Pension Transfers, the BSPS Trustee did indeed hold Q&A meetings in various locations around the country. I and many others attended one of them in Neath Port Talbot Council’s Civic Centre.
Also in the June 2017 edition of TATA Steel’s ‘Delivering Our Future’ newspaper, our Unions officially recommended some IFA’s for advice on pension transfers including Fiscale Financial Services Ltd, Lighthouse Financial Advice, and for “GMB members seeking financial advice to contact their regional office in the first instance.” This is what they said….“Community, Unite and GMB recommend that before you take the option to transfer out you should be sure you have all the information you need to enable you to come to an informed decision. Importantly, providing the RAA (regulated apportionment arrangement) is confirmed, you will have the option to transfer out throughout the consultation process so you can give proper consideration to this important, long-term decision.”
In the ‘Time to Choose’ period, I went to a meeting in the Aberavon Beach Hotel in Port Talbot with an IFA from Lighthouse Financial Advice. I was impressed with the top-notch meeting room and the IFA’s suave personality. However, although he put on a good show with facts & figures etc steering me towards transferring out of the BSPS, I wasn’t really taken in by it and at the end of the meeting I informed him that I would contact him if need be. For months afterwards, I had numerous emails from Lighthouse which became a nuisance.
Yes, the particular ‘well respected’ IFA in my area that I mentioned (no names given) could have been one of many, hence…“I have an idea who one of the honest IFA’s you refer to is.” They could have refused to act for their clients (steelworkers) regarding their British Steel Pension transfers but as you said in your previous reply….“they could have walked away and refused to action the instruction but then greed can be a very effective persuader.”
Thanks for your comments on my father, hopefully he’s got quite a few years left in him yet. I’m sorry to hear what happened to your Dad….the Blast Furnace area is not the best place for anyone’s health, especially in those days before health & safety!
It’s one of the biggest decisions I’ve ever made to retire at 55 years of age but I know it’s the right one for me after 35 years in the Steel Industry and other employment before that….I look forward to it later this year!
I hope your right when you say “The younger you retire, the longer your retirement.” 🙂
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