The headlines began in 2017 and have not gone away.
In the ongoing reporting of the proposed BSPS redress scheme, much has been heard from the FCA and Government but not much from those affected. As has been the case since early 2017, those impacted by the miss-selling have not had a voice other than that of Al Rush, an IFA who has campaigned for their fair treatment since the Time to Choose.
In the intervening 5 years, justice has come to some but not many, the majority of miss sold steelworkers have either been inadequately compensated or not compensated at all.
Yesterday, Al Rush instructed Hausfeld, the noted City litigation specialists to write to the FCA, FSCS and FOS to lay out the issues of concern for former BSPS members and make clear required action , short of which he will consider a potential judicial review. The letter makes clear that BSPS and the plight of steelworkers is a special case.
It’s sent in the interests of 324 such workers listed in the appendix to the letter but also in the interest of a wider constituency including the 1,000 or so who have claimed to date, many of whom could have received better redress had they not come forward as they did.
It explains how the miss-selling suffered by BSPS members is being compounded because redress is being awarded by the FCA (via the FSCS/FOS) in an arbitrary and unfair manner. These concerns are not only felt by Al Rush and the 324 steelworkers: they have also been raised recently by the Public Accounts Committee and were acknowledged recently by the FCA itself.
The required action relates to three specific issues: (i) financial advisor charges; (ii) early drawdown; and (iii) inflation; together with an over-arching issue (iv), relating to the FCA’s use of a ‘point in time’ redress calculation.
These issues are causing disquiet to a close-knit community of steelworkers, already vulnerable following the original mis-selling, and now even more confused and beleaguered given the parlous state of compensation due to current economic conditions.
The letter asks that the FCA addresses these issues in the proposed BSPS consumer redress scheme. It also asks the FCA., FSCS and FOS to resolve issues regarding the redress awarded to BSPS members to date, even if these former members are currently outside the scope of the BSPS consumer redress scheme. Based on the National Audit Office report of 18 March 2022, that may affect well over 1,000 steelworkers
If the FCA decides not to address the issues set out in this letter in the proposed BSPS consumer redress scheme, then Hausfeld is likely to be instructed to take legal action, including issuing judicial review proceedings.
Why has it come to this?
Lack of compensation for extra costs of advice.
The first issue that has prompted the letter is the denial of some steelworkers for a claim for the cost of ongoing financial advice. It has become clear that where a claim is made and the steelworker has no adviser, no compensation is given for advice. This despite the fact that many advisers have gone out of business, and some have made it clear they no longer want to act for their clients. It turns out that losing a client is financially advantageous as claims paid on former clients do not need to include a payment for advice yet to be given.
The letter says.
It is unlawful and/or irrational for the FCA/FSCS/FOS to not inform BSPS members of the financial impact of instructing an advisor, especially in circumstances where the BSPS member might ultimately instruct an advisor but receive lower redress because they had not engaged the advisor at the time the claim was made. BSPS members are financially unsophisticated, but in a position where they have to make complex financial decisions about their pensions. In these circumstances, it seems inevitable that, even if they do not have an advisor at the time they make a complaint, they will require one in the future. Therefore, it is arguably unlawful and/or irrational for the FCA/FSCS/FOS to assume that if a BSPS member has not instructed an advisor at the time they make a complaint they will not need one going forward and to reduce their redress accordingly.
It is hard to deny this logic.
Even harder as the FCA has now admitted claims for ongoing advice and even the cost of finding an adviser to claimants going forward. There is no logic in denying claims for those who came forward early while admitting them for those still to claim
Assessing when retirement starts
The second issue is over the reduction of redress for “early drawdown. As anyone who is 55 or over knows, if you have a pension pot, you can draw from it – whether you are working or not. Drawing down does not signify “retirement”.
A number of BSPS members decided to draw down from their DC pensions following advice from their financial advisors. They continued to work and did not retire. However, when calculating redress, the FSCS/FOS wrongly assumed that the BSPS members would have likely retired had they remained in their DB scheme and calculated their redress on that basis. As a result, these members have been undercompensated.
As with advice, the rules for those yet to claim will be more favourable with a “rebuttal” principle in place. This means that the point of retirement will be determined by the former scheme’s (BSPS) retirement age unless it can be proved that someone is retired before. Again, the rules going forward are not aligned to practice in the past and those who claimed first are being placed last in terms of the scale of compensation.
Changes in the calculation of inflation unfairly worked against early claimants
The third area of contention is the timing of claims, which Rush alleges minimised compensation for those with claims calculated before January 2021. Changes to the way RPI is calculated impact the methodology because it sets a differential (or ‘wedge’) between the RPI and the consumer price index (“CPI”) which is used in the valuation of CPI-linked DB benefits.
This resulted in significantly higher levels of compensation for redress calculated after January 2021. For example, the FSCS recalculated 33 claims using the updated methodology and awarded an additional £900,000 to BSPS members
The letter claims that the FCA, or FOS or FSCS did not advise victims to delay registering claims pending changes in the inflation rates applied, when they knew those changes would be made and knew that BSPS members would be disadvantaged by acting promptly.
Finally , the letter takes issue with what it calls “the Overarching issue: ‘point in time’ calculations”
The letter that former BSPS members were protected when in the scheme from the impact of market forces on their pensions.
However, the BSPS members cannot choose when they receive their compensation, which is subject to market fluctuations. The letter argues that BSPS members should be protected from such market forces to reflect the fact that BSPS was a DB scheme.
This is particularly the case given the ‘point in time’ calculation methodology employed by the FCA in respect of BSPS members. This methodology seeks to place the member, so far as possible, back in the position they would have been in if they had received compliant advice and remained in their DB scheme.
However, the FCA has also acknowledged that being placed back into the scheme, is not an option. So the best option would be to purchase an annuity, but there is no market for deferred annuities, thus this is not (currently) an option.
So, advisory firms calculate redress as the difference between the estimated value of the benefits given up in the DB scheme and the current value of the consumer’s DC pension and pay that redress as a lump sum. As a result, a BSPS member is awarded compensation based on assumptions as regards: (i) the lump sum needed to achieve the necessary amount at retirement age; and (ii) the likely annuity rates at that age.
The dramatic volatility in the financial markets this year, especially in respect of gilts, show that these types of projections: (i) cannot be undertaken reliably; and (ii) produce unfair and arbitrary results at the present time – the same person having their personal calculation for loss undertaken over the last three years would have had wildly varying amounts awarded to them.
The letter argues
Surely the FCA must see the uncertainty that this generates for steelworkers, and the undesirability of arbitrary outcomes based on what steelworkers decide to do?
Rush argues that with a suitable structure, a pooled scheme could provide a suitable replacement income at retirement.
The letter’s call to action
Hausfeld calls on the FCA to provide its decision to the issues outlined above before publishing their final plans for the proposed BSPS consumer redress scheme.
It wants an explanation on how the FCA intends to remedy these issues for all BSPS members, whether they have already been awarded redress or not.
Alternatively, if the FCA does not intend to remedy these issues, it asks for a written summary of the decision, explaining the grounds on which this decision has been made, and providing copies of all documents considered by the relevant decision-makers when making it.
It goes on to state
Once we receive the FCA’s decision, our clients and stakeholders will consider taking further legal action if necessary, including issuing judicial review proceedings.
I have a number of clients that find themselves disadvantage by having no adviser or an adviser who currently charges less than 0.75% advisory fee. The latest to seek my help was sacked by the advisory firm, the one who took over as “Investment Managers” after their sister company, same directors, shareholders, and advisers, went into liquidation, without the client’s knowledge.
In three virtually Identical cases, first client received £85,000 after a 12 week wait from start of complaint to completion. The second received £71,000 because he was paying 0.50% adviser fee and the third £0.00 because he didn’t have an adviser at the time of the calculation. All of which were direct applications to the FSCS.
I see that the FCA now say, hold off on your claim until their consultation and review has been finalised, if, “you are within 5 years of retirement” or “if you are married”. Therefore, leaving those who have greater then 5 years to retire or who aren’t married to guess if they should continue with their claim!!
Following on from that, it is assumed someone currently married won’t divorce or become a widower. It further assumes a single person won’t marry. It also assumes that those without an adviser of with less than a 0.75% adviser fee will never have a higher adviser fee.
It would also appear that although a claim was made in 2021, it is the current annuity rates that are being adopted at a time when the parameters that dictate these rates are artificially inflated by current unprecedented events. This calculation sometimes over a year on from the claim date.
It is time that some common sense was used, and standardised actuarial assumptions made based on previous averages not future possibilities based on current conditions. All calculations are based on the date of the complaint and not when the FSCS finally get around to it! I’ve seen a case held up for months because a pension provider ignored a request for information from the FSCS.
This fiasco needs to come to an end. The sooner the better.
N.B. Typo in last paragraph “all caculations SHOULD be based on the date of the complaint”