The British Steel pension saga damaged the image and reputation of the financial advice and pension sector. It will take a lot of work to restore faith in them. Lessons must be learnt, and the same mistakes must not be made again.
The accounts of steelworkers at the December 2017 work and pensions committee hearing revealed one of the biggest issues was the process of finding the right financial adviser. Steelworkers I spoke to voiced the same concern.
They were not pointed to one specific adviser whom the trustees recommended. Instead, steelworkers were only told to check the Financial Conduct Authority (FCA) website to ensure their adviser was authorised.
However, as Rich Caddy, a British Steel shift operations manager, told MPs last year, this was difficult, particularly given how the FCA register works.
‘We were advised to look on the FCA’s register to find out who is suitably qualified,’ he said. ‘Looking just recently, I have found someone who is suitably qualified and I have discussed this with a few advisers.
‘It is only when you go to certain drop-down boxes that it says the firm is restricted. You need some sort of degree to find a suitably qualified adviser.’
Ten firms have since agreed to defined benefit (DB) transfer permission restrictions, with the FCA suggesting they did not give appropriate advice.
There was very little guidance on who would be a good adviser to use, while certain IFAs used the deadline to encourage steelworkers to take a transfer. This resulted in a perfect storm for negative headlines and regulatory action.
So how could trustees have ensured things went better? Well, there was one step trustees did not take, and it would have been a brave one. This was to pick one large advice firm, or a few firms, they believed would provide the best transfer advice to members, and point steelworkers in that direction.
If that had happened, steelworkers would not have been left at the mercy of the FCA register to find an IFA. It may also have helped steer them away from the advisers who travelled to Port Talbot, and those who used ‘sausage and chips’ sessions to try to sell them transfers.
There are risks with trustees selecting one or more advisers they want members to use. But proper due diligence could provide a much higher level of protection for those wanting to take a transfer.
It may be early days. But, looking at the example of another large DB scheme, Nortel, lessons are being learnt from British Steel.
In March, the Nortel trustees secured an extra £550 million of funding from the global insolvency of the telecommunications giant. This meant the 32,000 members of the scheme would leave the Pension Protection Fund (PPF).
These members, whose pensions are being bought out by an insurer, do have a deadline by which they may want to take a transfer. Because once their pension is bought out, their transfer value could be reduced under the terms of the buyout.
In this case, with the high likelihood some members would be interested in transferring, the trustees came forward with a recommended adviser through national firm LEBC.
Picking the right IFAs
It may be too early to judge the success of choosing this recommended partner through LEBC, and what the outcomes will be for members.
But choosing a DB transfer advice partner strikes me as a very sensible thing for trustees to do.
There are thousands of IFAs to choose from. Without a recommendation from a friend or colleague, choosing the right one is difficult. In situations where there is a deadline to carry out a DB transfer, and with thousands of members all looking for help, this can be a recipe for disaster.
If trustees want to ensure another situation like British Steel does not happen again, they should give serious thought to picking IFAs they want their members to use. This is a far better approach than letting them take the spin of the FCA register wheel.