Steelworkers 'shamelessly bamboozled' over pensions scheme, say MPs
A major pensions mis-selling scandal is erupting according to MPs, who said British Steel Pension Scheme (BSPS) members had been "shamelessly bamboozled".
The Work and Pensions Committee said it had received worrying evidence about financial advice provided to members of the BSPS.
BSPS members had, over the past year, "been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called 'introducers'", it said.
Steelworkers yet to reach pension age were encouraged to transfer their defined benefit pension rights into a defined contribution pension, known as making a DB transfer.
DB transfers may offer people readier access to cash and can be in the interests of people with a low life expectancy.
But transferring away from a DB pension or a "final salary" scheme is not usually in someone's interests, the committee said - as it means giving up generous and stable benefits in favour of a riskier investment.
The report said: "The circumstances surrounding the BSPS created perfect conditions for vultures to take advantage."
Unsuitable advice on DB transfers is not only confined to BSPS members, the report warned.
It continued: "Research by the Financial Conduct Authority (FCA), which regulates advisers, shows that only half of such advice nationwide meets its standards.
"Yet over 100,000 people a year are taking DB transfers on the back of this advice."
The report said: "Another major mis-selling scandal is already erupting and we therefore call on the relevant bodies to treat this as such and take urgent action."
The report said the outlines of a deal to save the sponsoring employer of the BSPS, Tata Steel UK, had been in place since May.
Members were asked to choose between two pension schemes which offered inferior benefits to the BSPS - the Pension Protection Fund (PPF) or a new scheme, BSPS2, it said.
But many scheme members had lost trust and a member communication plan proved "woefully inadequate".
The Pensions Regulator was responsible for ensuring members were not left in the dark.
But the report continued: "All this failed. Instead, faced with making a life-changing choice in a hurry, many members were attracted to a third option of a DB transfer.
"This was seemingly unforeseen by all those bodies with a duty to watch and act."
The report said many BSPS members were "shamelessly bamboozled" into signing up to ongoing adviser fees and unsuitable funds with high investment risks, high management charges and punitive exit fees.
Since March 2017, the scheme has processed 2,600 pension transfers equating to a total value of Â£1.1 billion, according to data revealed on February 8 by the scheme trustees.
The average value of BSPS pension benefits transferred out was Â£400,000. In around 20 cases the transfer value exceeded Â£1 million.
The committee heard of advice fees typically around 2% of the transfer value and "punitive" exit penalties ranging from 5% to as high as 10%.
Among its recommendations, the committee said the Pensions Regulator should conduct a review to learn lessons.
An online register of advisers and their current status should also be created by the FCA, it said.
Frank Field, chairman of the committee, said: "Once again we find the Pensions Regulator fiddling while Rome burns, when it should have seen this rip-off coming."
He continued: "All the responsible authorities must act, now, to stop more people being cheated."
A spokesman for the Pensions Regulator said it is working more closely with other regulators to protect pension savers.
He said: "We fulfilled our primary role by evaluating and approving this complex restructuring of the BSPS including obtaining Â£550 million for the scheme.
"As part of this rare restructuring, which prevented the company becoming insolvent, a new pension scheme was offered to members as an alternative to entry to the PPF.
"We believe this was the best possible outcome for everyone involved in what was a very challenging situation, bringing greater certainty for thousands of scheme members.
"We also helped tackle unscrupulous financial advisers who were exploiting the situation and the current high transfer values available by working closely with the scheme trustees, the FCA and the Pensions Advisory Service (TPAS).
"We went to Port Talbot and took part in a discussion forum with scheme members and others.
"We reviewed communications sent to members and were satisfied they adequately warned of the dangers of transferring out of a DB scheme.
"And, while TPR does not regulate financial advice, we wrote jointly with the FCA and TPAS to members to flag potential risks."
The regulator plans to publish a joint strategy later this year tackling key risks facing the pensions sector.
Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said: "It is important not to throw the baby out with the bath water in this case.
"The right lesson is to clamp down on those who seek to exploit people and scam them out of their pension savings, not to deny workers the chance to reshape their retirement plans if they wish to do so on the basis of impartial expert advice."
In response to news that steel worker pensions were subject to miss-selling, Michael Cotter, Financial Services Lawyer at Setfords Solicitors said: “The manner in which TATA were allowed to offload its pension retirement fund has wide reaching repercussions for many who had dedicated a working lifetime to that industry.
“The environment that surrounded the period from April to late December 2017 was the perfect storm for unscrupulous advisers who were able to take advantage of vulnerable members of TATA who were left bereft of answers from the very people who should have been assisting them.
“The FCA have once again been slow to recognise the scale of the issue at hand and their actions may come too late for those who have transferred out.
“In light of these announcements by the regulator, it would be wise for all who have transferred out to review their current position and what they now have and importantly to check any entrance and/or exit penalties.”
An FCA spokeswoman said it had taken "detailed, extensive and robust action" on the BSPS to help steelworkers and it has been carrying out considerable work within its remit on DB transfer advice.
The spokeswoman said the FCA is also reviewing rules applying to firms advising on pension transfers, adding: "The FCA remains focused on ensuring consumers are protected."