The threat to mis-sold steelworkers
Fueled by a self-reference sense of injustice , certain advisers owing redress to clients they have mis-advised to transfer out of the British Steel Pension Scheme are now making their victims pay twice by harassing them into settlement of claims.
While this behaviour is reported in the trade press, its consequences aren’t. This blog looks at what support impacted steelworkers are getting and it focuses on the work of a small group led by Al Rush and Rich Caddy, who are maintaining the morale of those for whom the BSPS redress scheme has been created.
Support for these steelworkers
This is the new year’s message that Al Rush who is providing practical advice to steelworkers from his base in Port Talbot, is giving to members of the British Steel Pension Transfers Facebook Group.
Some of you may know that the British Steel Action Group has started legal proceedings against the FCA with a view to getting the BSPS redress scheme cancelled. The redress scheme itself is nothing more than an administrative overlay over existing compensation procedures for anybody who has been mis-sold a pension transfer.
The legal challenge to the redress scheme by the British Steel Action Group is bringing more uncertainty to steelworkers . It is prolonging the proceedings and has no regard to the financial and emotional well-being of BSAG’s clients – the steelworkers.
This means that even if the redress scheme does not go ahead, you are still able to complain under the pre-existing protocol. The redress scheme simply compelled a particular course of action in instigating the possibility of a claim or redress. It does not in itself, cancel or reduce your ability to make a claim or a complaint. However, some of you may be in the position whereby if you delay submitting a complaint, then you might find yourself out of time and be unable to have your complaint adjudicated. 
The threat of being “time out” is now very real, many steelworkers transferred out of BSPS in 2016 and are now facing the 6 year claim limitation
It is not my place to tell you to complain or make a claim. I am not authorised or regulated to do so. However, I would say this. If you are minded anyway to do so, you should carefully consider not waiting any further before you submit your claim or complaint. Further, you do not need to have legal advice in order to prosecute a complaint. However, with the situation being as dynamic and as fluid as it is at the moment, I would strongly suggest that you consider having a conversation about this with somebody who knows what this business is all about, or a professional who is authorised and regulated to prosecute a claim on your behalf
Left to fend for themselves, many steelworkers have made the wrong decisions, and many more will do so, as they are worn down by a system that seems set against them.
Many advisers are currently writing to steel workers offering minimal or nominal amount of compensation. So, whatever you do, do not rely solely on a conversation that you once heard in the mess at work before you decide what to do.
But steelworkers who claim to the Financial Ombudsman get no help at all. To quote former steel man Rich Caddy
The problem is.. FOS do not check calculations but instead send you what ever offer the firm has made (usually a manufactured figure) FOS who declare you do not need advice when making a complaint then suggest you should take advice on the validity of the offer. The same goes for taking professional legal advice, they present options such as the member paying between £1k – £2k for a redress calculation without offering the advice that is so needed. Presenting options is a far cry from providing advice.
How advisers are seeking to gain advantage
Advisers have learned how to game the redress system to manage down the claims which they are required to assess. The most obvious tactic used by advisers to diminish claims is the selective use of the very volatile gilt yield to massage down compensation claims.
There were periods in 2022 when compensation could be managed virtually to zero simply by exploiting spikes in the gilt yield
Finding another spike in gilt yields will be all too easy in 2023, those owing redress can calculate the redress they pay when the markets suit them.
Even with the long dated yield now at 3.5%, the FCA estimate that average compensation falls from £60,000 to £45,000, but given the latitude advisors have to determine the date when they value the loss to steelworkers, any future spikes could be used to determine redress is slim to non-existent.
Al Rush has explained the stupidity of this very well in this analogy.
Imagine an employer determining the amount it pays month by month into a defined contribution pension according the likely annuity that contribution would buy in 20 years time.
The FCA has further work to do to bring order to this disorderly market, the alternative is further pain for the victims while the perpetrators of ill-advice continue to benefit from it.
A depressingly litigious landscape
For now, it is litigation, not compensation that dominates the conversation.
Everyone’s circumstances and situations are unique and completely different, and what applies to your mate at work will probably not apply to you. If your IFA contacts you, whatever you do, seek and take further advice from somebody or an organisation that you know and trust before you decide on a course of action.
Somewhere in this protracted process, the idea behind “treating customers fairly” got forgotten. If there is a “consumer duty”, how is it being displayed here?
Put bluntly, your transferring adviser will probably have paid for expensive legal advice before sending you that letter. You will be like a lamb to the slaughter if you simply take it at face value without carefully considering all your options first so that you can make an informed, measured and reflective decision that is going to be in *your* best interests.
Any good adviser reading the following paragraph will be shocked that these words have to be spoken.
You are going to get one chance to get this right. This has been going on now since 2017, and I know that many of you are weary of it and pissed off. But that’s what they want. They want to wear you down and diminish and undermine your will to fight. So, maintain your controlled aggression, your sense of outrage and anger, and your resolve. And do not fuck it up right at the very end and possibly sign away what is rightfully yours simply because you could not be arsed to go the extra mile by asking somebody else for help.
Will there be light at the end of this long tunnel?
I will continue to write about this as the year progresses. There are many minor injustices that are being righted by Caddy and Rush, with the help of expert opinion. I will report on them as well. But for the most part, I want to talk about ways to make this redress better and here I may have good news.
The harassment must stop and redress must begin – but only proper redress. We have to trust the regulator and consumer protection and we have to enforce the consumer duty.
How much loss was there for Steelworkers compared with the real figure on LDI ( still not disclosed) only the €500bn guess available It stinks
It may be worth pointing out that along side the 30 year gilt yields, the annuity rates have also increased significantly. Therefore, the majority of the steelworkers can purchase the same, or better income, than they gave up.
Also, in the balance of fairness, it may be worth pointing out that the steelworkers benefitted from the all time low gilt yields that were in force at the time they transferred out. This resulted in the high transfer values they received at the time.
However, that doesn’t seem to fit with what Mr Rush is trying to achieve. The steelworkers need to decide if they wanted guaranteed income, or if they wanted flexibility.
If they want guaranteed income, then go and buy it. They will be better off.
BSPS transfer values attracted relatively low multiples of income (23/4 x pension relative to 40+ from schemes with higher gilt allocations. Plus the CETVs were clipped because of the deficit on the scheme(the actuarial reduction of 5%- higher before Tata put money in the scheme as part of the RAA)
What has happened to SIPP valuations or annuity rates since transfer is not the issue, the issue is that they transferred and shouldn’t have. Steelworkers deserve restitution as happened in the previous transfer scandal. IMO, the quantum of loss should have been established at the “point of sale” and not some arbitrary moment of the adviser’s choosing.
Surely the perfect restitution is to replicate the guaranteed income that they gave up by way of annuity?
The problem then becomes, what happens to the excess money they have in then it pensions?
Not all of them went to SIPPs. There were plenty who went in to good, low cost, personal pensions.
The quantum of loss being established at the ‘point of sale’ doesn’t work due to the fact that if you are giving them the redress now, then they would be able to purchase the annuity now, and as such would have benefitted from the increased annuity rates caused by the increase gilt yields. Therefore they would be much better off. The point of redress or compensation is to put them back in to the position they would have been in. It is not to make them better off.
The vast majority of these cases will now be better off if purchasing annuity, so therefore, to say “they shouldn’t have transferred” doesn’t really compute either. If they are better off, then surely they should have transferred? Don’t we as an industry advise people on how to make the most of their savings and investments? Saying they shouldn’t have transferred is akin to saying “they shouldn’t have invested that money, they should have kept it in cash”.
Let’s not forget that a lot of these steelworkers had very large pre 1997 benefits. In the new scheme or PPF, these benefits would not have any increases in retirement. This is guaranteeing that these benefits are effectively going down in value every year.
On another note, I had also heard that an IFA, who is not qualified to give transfer advice, was taking on clients and increasing their ongoing adviser charge. The justification for this being that it will increase their compensation. Quite frankly, that is criminal.
Dear Tom, being more frank I am concerned that you are quaified as an adviser with such little knowledge of the circumstances, but I am interested to hear a response.
Firstly the majority of members I speak to in a group of 2,800 have little to no pre-97 service.
You are making the suggestion that a lack of inflationary increases are out-weighed by investment risk, are you of the belief that investments only ever go up.
I don’t disagree with the option of an annuity, however I was looking at a FOS case last night where a young couple were advised to transfer at age 40, now at 45 where do you suggest they can go out and buy an annuity guaranteeing to match the benefits they would received in 20 years from now.
Bearing in mind the dramatic turnaround in inflation and gilt rates over the past 12 months, do you expect them to remain at this level for the next 10 – 20 years.
What is criminal is where an advice firm charged members 1.25% annually, and then suggests the redress should only account for 0.5% on the basis of no longer remaining as a client following receipt of a complaint.
Even more criminal, how many advisers do you expect will recommend the client buys an annuity, with the result being that they would no longer receive the annual fees for advice.
Oh sorry I forgot, financial advisers have a code of ethics to always act in the clients best interest, so obliously they would recommend an annuity.
Ricardo,
Firstly, i am assuming that you are qualified to give the pension transfer advice, as i am aware that many who like to comment, and shout the loudest, aren’t qualified.
If you have seen 2,800 cases all under the age of 40, and/or no pre 97, being charged 1.25% ongoing advice fees, then i totally agree with you! If I’m brutally honest with you, i am sure that in the group you talk about, there are some cases that fit that profile, however, not the majority.
However, i can only speak as I have seen, and that is that the cases i have seen have had a minimum of 40% pre 97, up to 100%. I saw some cases where people had 100% pre 97, transferred out and immediately purchased annuities. Annuities providing greater income than they would receive from the scheme. Yet these are included in the redress scheme!
If, 2,800 of the 7,700 that transferred out were under 40, being charged 1.25%, then there has been a massive failure. The FCA should have acted far earlier, even before BSPS. There must have been red flags raised about anyone charging 1.25% ongoing fees!
However, you also have to accept that there are many cases that don’t fit that profile.
In relation to your question about gilt rates and inflation, the short answer is no, i don’t expect gilt rates or inflation to remain at this level for the next 10-20 years. However, i don’t expect them to drop massively this year, possibly next. At the same time, i would ask you, do you expect them to return to the historic low level that we had for the last 12 years? I’m assuming the answer is no? You have to accept that the gilt yields were at an all time low, and should return, to their long term average or thereabouts. Therefore, to calculate, based on the ‘point of sale’ would be going to an extreme the other way. This would be ‘betterment’. Betterment is not the aim of redress/compensation.
I still maintain that those who have taken on clients who were paying 0.5% ongoing fees, and increased them to 0.85% should be treat as profiteering.
In terms of is 0.5% ongoing fee that the FCA are assuming for an ongoing fee sufficient? Yes I believe it is. If the average value was, as the FCA have told us, around £350,000, then an IFA should be able to give ongoing advice for 0.5% of that.
Going back to those with large elements of pre 97 benefits, then you need to consider that someone with 50% pre 97 would only ever be able to achieve an overall increase on their pension of around 1.8% per annum. With long term average inflation running at 3.5% and short term over 10%, then it is easy to see that the buying power over the next 20 years is seriously reduced. Even over the last two years. Capping increases at that level is guaranteeing that they lose value every year. They can never keep up with inflation, ever.
Moving on to the, do i expect advisers to recommend annuities? Yes i do. If the client wants a guaranteed income, then why wouldn’t they? However, likewise, if the client doesn’t want a guaranteed income, then i wouldn’t expect the annuity. At the same time, if someone has transferred out and wants to keep the flexibility (ie not a guaranteed income), then why should the calculation for compensation be based on providing a guaranteed income for life? You can argue all ways round.