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National Audit Office slams British Steel Pension Scheme operation

by LLB Reporter
18th Mar 22 12:14 pm

Some people who transferred out of the British Steel Pension Scheme have suffered significant financial losses because they were provided with unsuitable advice, the regulated financial advice market failed to protect them, and they have not been compensated fully, according to the National Audit Office (NAO).

The British Steel Pension Scheme (BSPS) was a large Defined Benefit (DB) scheme sponsored by Tata Steel UK.1 It was restructured in 2017 after Tata Steel experienced financial difficulty. A wide range of bodies, including government organisations and regulators, have been involved in the BSPS restructure, the regulation of the pensions and advice markets, and the provision of redress to affected steelworkers.

During the BSPS restructure, members had to decide between two options for managing their pension benefits.2 Some 44,000 members also had an alternative statutory option to transfer their pension fund out of the scheme altogether. Members that wanted to transfer out of a DB pension scheme were required to take financial advice from a regulated advisor if the value of their pension is greater than £30,000. Almost 8,000 members chose to transfer their benefits out of the scheme to another pension arrangement. 95% of these decisions were informed by independent financial advisors.

BSPS members were particularly vulnerable to pension advice mis-selling. Pensions are highly complex and most BSPS members had limited experience of making decisions about their pension or using a financial advisor. Members had a limited time to decide what to do with their pension and the value of members’ benefits were substantial (the average transfer value was £365,000, with some worth over £1 million). Other reviews of the BSPS case have found that the communication and support provided to members at the time of the scheme restructure was not adequate to inform their decision.

The FCA responded by working with the adviser market and pension members to try to contain the most immediate harm. For example, it diverted staff to work on the BSPS and communicated with advice firms to remind them of its regulatory expectations. It wrote to BSPS members who were considering transferring out to urge them to be careful and helped to organise a dedicated helpline for members seeking further guidance.

The FCA has issued £1.3 million of fines and has 30 more enforcement investigations ongoing. It has also changed its approach to regulating the pensions advice market in response to the BSPS case. For example, from 2018 it began collecting more data from financial advisors and has changed the way it engages with regulatory partners, such as developing a joint protocol to enable early intervention in DB transfer cases and banning charges where advisers are paid only if a transfer proceeds.

Gareth Davies, the head of the NAO, said: “Although measures have been put in place aimed at improving how the pensions advice market is regulated and to attempt to remedy the financial losses suffered by British Steel Pension Scheme members, it is clear that many people have not been compensated fully under current arrangements. The BSPS case demonstrates the costs and difficulties of remedying failures in financial services and the importance of preventing problems from occurring in the first place.”

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