A Port Talbot insight
The Financial Regulators Complaints (FRC) Commissioner has upheld a complaint over the Financial Conduct Authority’s (FCA) handling of the British Steel Pension Scheme (BSPS) advice scandal, concluding that the regulator acted too slowly to prevent widespread unsuitable advice.
It is meagre comfort for the steelworkers involved who from 2017 could see exactly what the failings of the regulators were at the time.
In a final report, the commissioner, Abby Thomas, found that the FCA contributed to “serious consumer detriment” among steelworkers.
There has been no investigation of the failures of the Scheme itself to provide assistance to the steelworkers or indeed the failure of its regulator (the Pensions Regulator) to make it clear what was being lost by leaving the pension scheme
More than £17.6m has been paid in compensation to over 470 affected customers so far, many of whom suffered losses exceeding statutory limits.
But the payments have been based on a formula that works on current annuity rates. Those who got the bulk or these payments got them before the hike in gilt rates in 2022 which meant the formula work against the former pensioners.
The FCA previously described the case as “one of the worst” it had seen, highlighting the extent of consumer harm within the BSPS advice market.
I gave witness to the Work and Pensions Committee on this, Megan Butler followed me and steelworkers who had been ripped off. Megan Butler was in charge of the FCA’s operation but had no idea of what was going on and was berated by Frank Filed for being ill prepared both for her session and for what happened in Scunthorpe, Port Talbot and elsewhere.
However, the commissioner has argued that the FCA’s shortcomings were not isolated but reflected “a series of regulatory failings” across the entire lifecycle of the BSPS episode.
I would agree and this blog intends to stand as a reminder that it warned anyone who would here that disaster was coming when a strategy was adopted that kept the scheme out of the PPF. If the original proposal had been adopted and the £15bn scheme had been put into the PPF’s waiting room, something could have been done to protect steelworkers. Instead a silly scheme was devised by consultants, the lead of which was ex TPR. Here is not the place to rehears detail , but a book needs to be written.
Here is the conclusion of the Pension Age Article, thank you Callum Conway.
In particular, the report concluded that the regulator failed to act on known risks in the defined benefit (DB) transfer market, despite earlier evidence of poor advice standards and systemic weaknesses.
Key criticisms included its delays in banning contingent charging despite recognised conflicts of interest, inadequate oversight of adviser qualifications and professional indemnity insurance (PII), and a failure to gather real-time data on firms advising BSPS members during the “Time to Choose” window.
The commissioner therefore upheld the primary complaint that the FCA was “consistently behind the curve in anticipating, preventing and responding” to the crisis.
She also highlighted that although a redress scheme was introduced, many steelworkers had not been restored to the position they would have held had they remained in the scheme.
In response to the final report, the FCA rejected the central finding, arguing that its actions were “reasonable and proportionate” based on the information available at the time.
The FCA stated that it “does not agree” with the conclusion that it was behind the curve, pointing instead to its risk-based supervisory approach following the 2015 pension freedoms and subsequent enforcement activity.
It noted that more than £106m in redress had been secured for 1,870 former BSPS members and that enforcement action had been taken against over 20 individuals and firms.
The regulator also emphasised that DB transfers were already presumed unsuitable under its rules, placing responsibility on firms to act in customers’ best interests.
However, it acknowledged that data-sharing limitations constrained early visibility of the issue and added that improvements had since been made, including enhanced analytics and closer coordination with other regulators.
In an interim statement, the commissioner signalled that the FCA’s response raised “clear points of disagreement” and would be reviewed in more detail.
A further considered response is expected in due course.
Rip off, just like the recent Lords vote on not accepting the amendment to the Pensions Bill to allow retrospective compensation for pre-1997 DB pensioners in the FAS!
Is the Pensions Regulator still of the mindset that transfers out of a DB scheme are inherently desirable?
Despite the increasing evidence to the contrary the DB Funding Code is believed by many as perpetuating that myth, leading to the loss of assets to third parties that could otherwise be used to secure and increase members’ benefits. Surely the goal in any pension scheme should be to maximise the contribution from investment returns at an acceptable level of risk, while at the same time strengthening the existing sponsor’s covenant so that it can continue to provide adequate pension prospects for current employees and, but only if necessary, provide additional risk capital to the pension scheme.
The rise in gilt yields reducing the assumed required asset value is lost to a scheme that has already bought in its liabilities at a much higher price. With the benefit of hindsight the buy-in appears to have been a bad decision that has reduced members pension prospects and increased employer insolvency risk. Did the advisors to the Trustees at that time clearly advise them of those risks, or merely suggest that this was the course suggested by the Regulator and the DB Funding Code? The issues of the extraction of profit by third parties and the loss of the contribution from future investment returns applies on a national scale to buy-outs; while current employees are left with the inadequate pension prospects provided by the 60% less efficient (according to the Pensions Minister) DC pension system.
TPR’s mindset won’t change unless and until their “statutory objectives” are amended.
As set out in the Pensions Act 2004 (and amended by subsequent legislation), those statutory objectives are:
1. Protect benefits: To protect the benefits of members of occupational pension schemes and personal pension schemes (where direct payment arrangements are in place). That’s accrued benefits, not future benefits.
2. Reduce risk: To reduce the risk of situations arising that may lead to compensation being payable from the PPF.
3. Promote good administration: To promote, and to improve understanding of, the good administration of work-based pension schemes.
4. Maximise compliance: To maximise employer compliance with automatic enrolment duties and safeguards under the Pensions Act 2008.
5. Support sustainable growth: To minimise any adverse impact on the sustainable growth of an employer (when exercising TPR’s defined benefit scheme funding functions).
That last one isn’t a “growth objective”. Not when it emphasises DB funding rather than DB investment.