A burning issue

The FCA has issued a report on the outcome of its BSPS redress scheme.

I have reported this week on the mood among steelworkers who have been part of the FCA’s redress scheme , using their own words, from their Facebook pages. Speaking of what they see as daylight robbery, one uncompensated victim wrote “at least Dick Turpin wore a mask“.

The FCA’s is full of infographics and explanations of due process. It does not quote from the steelworker’s own pages.

The backstory used to gloss over the failure of the redress scheme

At a high level compensation appears to have been plentiful. But this infographic only tells half of the story.

Until the end of 2021, compensation was running at an average of £60,000 per member, representing the shortfall between the true cost of the benefit given up (BSPS membership rights ) and the value of the benefit acquired (money in a personal pension). To all intents, this was a calculation based on the situation at the moment the bad advice was given (46% of those transferring were deemed to be badly advised).

But during 2022, the amount of compensation began to reduce and by the end of the year, claims that once were meaningful became nugatory. A steelworker claiming in 2023 was more likely to get an answer that the claim for wrongful advice was upheld but the compensation was set at zero.

Everybody knows that what happened at the end of 2022 was disastrous for pensions, but not many know that it also did for the steelworkers compensation  (compo).

Of the£106m paid out to steelworkers , £97.4m was paid before February 2023. The Redress scheme introduced in Feb 2023 paid only £8.7m out of a predicted £71.2m.

Poor advice up, compensation down

The percentage of steelworkers deemed ill-advised in the redress process actually increased from 46% to 49% but the compensation plummeted from £60k to around £4k per person.

The FCA estimates 1,744 former members received unsuitable advice but were not offered a redress payment. This was because their claim was not addressed until after the seismic event in 2022 that changed everything.

That event was the huge hike in the Government borrowing rate (the gilt rate) that made it cheaper to offer pensions and annuities and reduced the value of compensation from £60k to £0k. To a  large degree, this was down to the craziness of Liz Truss and Kwasi Kwarteng’s suicidal min-budget which took interest rates higher for longer than they ever needed to be.

But even without the mini-budget, those at the back of the compensation queue were bound to be short-changed. For the Government had decided , with the Bank of England, to stop supressing interest rates and start the process of quantitative tightening and this is where the steelworkers were really shafted.

The FCA , as it set up the redress scheme in 2022 knew full well what was coming. It’s former CEO , Andrew Bailey , was now the Governor of the Bank of England. The redress scheme was set up in such a way that it was bound not to pay redress. In that it succeeded, 1744 steelworkers were found the victims of bad advice and got nothing. Not much more of than 10% of the redress promised, ever got paid out. Around £62m in redress has been “saved” , keeping the IFAs who managed to get their claims into the back of the queue, in business.

What should have happened.

I am not speaking wisely after the event. I predicted this would happen, both in my submission to the consultation on the redress scheme and on this blog. I predicted that linking the compensation paid to the gilt rate at the time compensation claim, would allow those making the calculations – THE CULPRITS- to choose the compensation they wished to pay. Clearly most were happy to pay nothing.

I argued in my consultation that the compensation should be calculated using the factors relevant at the time of the claim. These were the factors that led to £60k claims which properly compensated for the loss of certainty that came from swapping pension from pot and the subsequent disruption to retirement planning and the need for ongoing advice , occasioned by having retirement income linked to market forces.

ALL compensation should have been paid at 2018 discount rates – based on the conditions prevailing when the advice was given and it should have been calculated on the basis of the before and after position of the steelworkers.

How was it that the first 1500 claimants got close to £100m and the next 1750 got less than £10m?

The first and simplest answer is that the FCA got their redress scheme horribly wrong.

The second is that they got bamboozled into running a scheme that the culprits knew worked for them and the steelworkers didn’t understand.

The third is that financial compensation should not have been based on gilt based discount rates but on the damage done to communities and people by the reckless behaviour of advisers who to quote Arthur Daley “saw a window of opportunity and jumped right though it”.

The FCA could and should have established compensation based on the situation at the Time to Choose and left it at that. They gave in to arguments that served the culprits well and the victims not at all.

The FCA may be trumpeting the compensation process a success but that is like reporting the situation at full time by the score at half time. It took nearly four years to process the first 1500 claims – but at least these claims were processed fairly, the remaining claims – more than 2000 of them, were processed quicker but resulted in diddly-squat compo.

The 360 who got something out of the Redress Scheme got on average £25,000 , 1744 got nothing

There is no fairness in this, those who waited longest got nothing – that is not fair. The Government should ask serious questions of the redress scheme and consider recalculating compensation based on the discount rates prevailing at the time to chose.

It should then speak to me about finding a proper way to offer steelworkers restitution to a DB plan.