The Public Accounts Committee
There’s an irony to PAC’s assertions. It was extremely critical of the FCA in almost every aspect but never even questioned a key one: the FCA’s own assessment that transfers were very widely unsuitable at BSPS. This is now being widely challenged. PAC didn’t notice.
— Stuart Fowler (@fowlerdrew) July 21, 2022
The challenge that Stuart mentions is from the British Steel Action Group , a collective of IFAs who have their own solicitors and PR agency. It has issued a press release the upshot of which is that;-
BSAG say the Financial Conduct Authority (FCA) Redress Scheme is likely built on unreliable evidence. Different tools, with apparently different versions, were used, scoring took place at times when different rules existed, and BSAG argues the FCA cannot show their 46% ‘unsuitable’ claim is in any way reliable.
This is to Stuart’s point, but it can hardly be said that the Public Accounts Committee (PAC) ignored BSAG’s vehement protests that most IFAs had done nothing wrong.
BSAG is mentioned in the report repeatedly, but it’s message is ignored.
BSAG is arguing that BSPS IFAs are analogous to Post Office Postmasters, wrongly accused by dodgy data. The analogy is tendentious as anyone who spent time with steelworkers will know.
This blog explores just who is held to account for what has gone wrong and concludes that while it is clear there is a mess, PAC have are only now beginning to sort out who pays and what is paid.
The IFA’s voice – heard and now ignored
At the back of the PAC report are links to at least 20 template letters from BSAG members arguing the injustice of the FCA’s position (the link is to an example). It is unlikely that these letters weren’t read or indeed that the full BSAG report, which was circulated to the press (and me), wasn’t considered. I wrote in June on this BSAG report , concluding
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.
Why has it taken IFAs nearly five years to challenge FCA data?
The failure of advisers to put the customer first
There was another collective of IFAs active during and immediately after the Time to Choose, known as CHIVE and organised by Al Rush. Indeed, Al and other IFAs organised a meeting of financial advisers in an aircraft hanger outside of Peterborough in the summer of 2017 to address the potential risks and rewards of the glut of DB transfer opportunities available to IFAs. You can read about this event “the Great Pension Transfer Debate” here. My question then was
Are pension transfers advised upon or sold?
My conclusion at the time was that this was a disorderly market where some IFAs were advising as best they could and that some were simply selling the need for clients to get out of DB schemes and into SIPPs as a “no-brainer”.
I was not the only one advising caution; figures such as John Ralfe and Rory Percival spoke at the meeting arguing for a more orderly approach. At the same time, IFAs were switching their business models from upfront fees to contingent charging and the flood-gates were opening.
Much is currently being made of the new-found availability of pension freedoms as a driver for the boost in transfer values in 2017. I remember little talk of freedoms at the time, all the talk was of rocketing CETVs, contingent charging and of the insecurity of funded defined benefit schemes.
The average size of a DB transfer in 2017 was well over £400,000, which would have made the transfer available for drawdown pre and post the freedoms. Pension freedoms are now being touted as the early warning sign the FCA missed. The early warning signs were on display at the Great Pension Debate – they were supply side not buy side driven. The trebling in transfer activity from 2016 to 2017 was not coincidental with the introduction of freedoms , but part of a massive marketing push by all parties interested in managing DB money in a DC context.
At this point , someone within the IFA community could have taken charge and showed some real leadership. There were (and are) plenty of advisory trade associations but my memory of the time was that the Great Pension Transfer Debate of June 19th 2017, turned from a debate into a sales festival, sponsored by insurers and SIPP suppliers who ended up profiting from the £34.25bn in transfers from DB schemes that followed in the next 12 months.
So I repeat, if BSAG is virtuous, what was it doing in 2017 and 2018 to create an orderly market for transfers? The mess cannot be blamed on Pension Freedoms, though they were one of many contributory factors. The mess was of the market’s making.
And if IFAs are to argue that the FCA were wrong in its analysis, why did it not challenge the FCA in early 2018, when the FCA conducted its research? Why does the financial advisory industry not have a professional body that is self-regulating like the IFOA , the ICA and the Law Society, to lay down standards of behavior and censure those who break them?
The failure of IFAs to self-regulate has led to their being regulated by the FCA. Because they failed to put consumers first, they have now no voice at the Public Accounts Committee.
In answer to the question “who pays and what gets paid”, the answer is no longer in the hands of the IFAs .
Market intelligence depends on working together
While I believe that BSAG is skating on thin ice, I accept that PAC’s position on the FCA which is that the Regulator was “consistently behind the curve”. But my submission to PAC makes the point that to be on or ahead of the curve, the FCA needed market intelligence of a potential problem with BSPS’ Time to Choose.
It failed to be alive to the growing problem , just as the Pensions Regulator failed to consider the implications for members of getting them to choose between a rock and a hard place (BSPS or PPF). It wasn’t just TPR, PWC were advising Tata on the RAA, WTW were advising the Trustees of BSPS, LEBC were brought in to provide guidance on the choice but no-one was prepared to accept the evidence that I and Al and the FT and the BBC were producing of an impending stampede for the exit. This poll was conducted by a steelworker on the member’s Facebook page almost 5 years ago to the day.
This was a disorderly market and neither the FCA or TPR were doing anything in the summer of 2017 but ignore the warning signs. Had the FCA been at the Great British Transfer debate (attended by over 400 IFAs) or heeded my blogs, the BBC news articles or Jo Cumbo’s reports, they would have been better prepared.
In answer to the question “who pays and what gets paid”, there is a strong argument for revisiting the roles of both TPR and FCA and at looking at what accountability FOS and FSCS has in the current mess. These organisations may have to “pay” in terms of a change in leadership and culture.
Where is there capacity to pay?
Reading the various submissions of IFAs to the PAC inquiry, it seems clear that many IFAs will fold under the terms of the redress proposals put forward by the FCA. This isn’t good news. There are some who argue that the FCA are now sufficiently implicated by the NAO, PAC and the original reports of the WPC to be held responsible for the compensation itself. This would pass the bill to the Treasury , meaning that it would be met out of general taxation rather than through the FSCS levy , which impacts the financial services industry.
If – as seems probable – the restitution bill ends up a multiple of the current estimate for BSPS of £76m, then that would be material but manageable. If there is contagion and the kind of problems reported in Dagenham, Halifax and other centers of DB transfer activity outside BSPS, are included in future restitution, then DB transfers will threaten the stability of the IFA community and the regulator.
It may well be that restitution for poor pension transfer advice ultimately runs into billions of pounds. If this is the case then a wider and deeper pool may be required. But PAC are right to ask serious questions about how Governmental bodies allowed matters to get this far. Ultimately the buck stops at the Treasury.
What’s paid?
Writing on Facebook , following the PAC report, Al Rush considers redress in the light of what BSPS members have been offered by FOS and FSCS so far.
The PAC #BSPS report has been published and it is highly critical of the role of the FCA in particular. PAC has not let FCA off the hook and has tasked it, and FSCS and FOS, to report back with more information within six months. Senior careers must be viciously and publicly finished because of BSPS. It is an unconscionable act to present those responsible for this disaster in the first place with the opportunity to cobble together a face-saving solution. Their failure and shame must be public, indelible and eternal. Andrew Bailey was a soporific disaster and it looks like Nikhil Rathi is shaping up to be the same.
We are only aware of how FSCS perniciously reduces redress because of BSPS. I dread to think how many non-BSPS claimants across the UK have been compensated wrongly and remain ignorant of FSCS sharp practice. We must review *all* FSCS BSPS cases before feeding them new victims. The FCA/FSCS/FOS senior staff are overly enthralled by those who dictate the political agenda, and consequentially, their careers and salaries. We must end the revolving door career/paste over the cracks mentality at FCS/FSCS/FOS which serves us up public bodies irredeemably unfit for purpose.
Al argues from the other end of the spectrum from BSAG, arguing that compensation is not too high, but too low.
Al can point to the historic pay-outs of compensation to early claimants against their BSPS advice and demonstrate the inadequacy of compensation. There is growing evidence that compensation from FSCS is being managed down. If this is the case at BSPS it is probably the case outside of BSPS.
The Public Account’s Committee is responsible for overseeing government expenditures, and to ensure they are effective and honest. What the bill for the pension transfer mess will be, and who will pick it up, are very much open to question.
I do not think that an advisor is against paying redress where the advice was wrong.
However, the advice needs to be looked at correctly and the tools used so far, and not good for the job. The last tool implies that we should have told steelworkers to retire 5 years later or so. We did say to some this, and guess what the reply was: “if I continue, in 5 years I could be dead!” Maybe this was too much, but shift work, putting up with blast emissions in their 50thies is a problem which is not for us to tell people when to retire. Instead, we needed to hep them to retire early.
If redress is to be paid, the right life expectancy for blue collars in Wales and North East needs to be used, not the normal life expectancy. Also, smokers and people with high BMI need to be paid less.
We are discussing now with some insurers, to be able to offer these people who were wrongly advised, deferred annuities or immediate pension annuities. You cannot have it both way, flexibility and compensation, and not guaranteed income. If guaranteed income was required, the IFA paying compensation should put them back with an insurer on guaranteed pension income, similar with BSPS2.
By the way, myself I am not affected by this Section 404.
Permit me to turn your own arguments against you, Henry.
“So I repeat, if BSAG is virtuous, what was it doing in 2017 and 2018 to create an orderly market for transfers? The mess cannot be blamed on Pension Freedoms, though they were one of many contributory factors. The mess was of the market’s making.” This assumes (as PAC did) that the FCA unsuitability findings are reliable and that transfers (not just the high-risk ones) are likely to lead to loss. This is exactly what is finally being challenged, with the benefit (ironically) of the s404 legal process.
You ask: “And if IFAs are to argue that the FCA were wrong in its analysis, why did it not challenge the FCA in early 2018, when the FCA conducted its research? Why does the financial advisory industry not have a professional body that is self-regulating like the IFOA , the ICA and the Law Society, to lay down standards of behavior and censure those who break them?” Is this not the same category of error, as you assume advisers as a class were acting harmfully rather than look at the evidence that transfers at BSPS were probably very sensible?
It’s very clear from BSAG’s evidence to the committee and from the submission of the newly-formed Association of Pensions Transfer Specialists, that firms directly affected feel they have been bullied, cajoled and threatened into accepting whatever the FCA says, however unjust or erroneous. The FCA has been threatened with judicial reviews but always backs off, as if to avoid independent and expert-guided judgement. But they have pushed advisers to the point where they have nothing to lose. Even if the s404 scheme goes through and they manage too find expert persons who pass their work as suitable, it will then go to FOS – where advisers’ success rate is zero.
So when you assert that because IFAs “failed to put consumers first, they have now no voice at the Public Accounts Committee” you are doing what PAC did: ignoring their defence because you presume them to be guilty.
Objection.
Objection sustained.