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'Fiddling while Rome burns': 15 key points in MPs' BSPS report

As the parliamentary work and pensions select committee publishes a damning report on the British Steel pensions saga, we round up all the report's most important revelations and recommendations.

'Shamelessly bamboozled'

In a report published today, the parliamentary work and pensions select committee has declared that 'another major mis-selling scandal is already erupting' on defined benefit pension transfers for British Steel Pension Scheme (BSPS) workers.

What the press release said:

'From March 2017 until now, the scheme has processed 2,600 pension transfers equating to a total value of £1.1bn, according to data revealed on the  8 February by the scheme trustees.'

'The average value of BSPS pension benefits transferred out was £400,000. In around 20 cases the transfer value exceeded £1 million. The Committee heard of advice fees typically around 2% of the transfer value  - with and that the receiving funds sometimes imposed high annual charges and ‘punitive’ exit penalties ranging from 5% to as high as 10%.'

What the report said:

'Dubious advisers exploited BSPS members for personal gain. [...] While doing so, they shamelessly bamboozled those members into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees.'

'Shamelessly bamboozled'

In a report published today, the parliamentary work and pensions select committee has declared that 'another major mis-selling scandal is already erupting' on defined benefit pension transfers for British Steel Pension Scheme (BSPS) workers.

What the press release said:

'From March 2017 until now, the scheme has processed 2,600 pension transfers equating to a total value of £1.1bn, according to data revealed on the  8 February by the scheme trustees.'

'The average value of BSPS pension benefits transferred out was £400,000. In around 20 cases the transfer value exceeded £1 million. The Committee heard of advice fees typically around 2% of the transfer value  - with and that the receiving funds sometimes imposed high annual charges and ‘punitive’ exit penalties ranging from 5% to as high as 10%.'

What the report said:

'Dubious advisers exploited BSPS members for personal gain. [...] While doing so, they shamelessly bamboozled those members into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees.'

Field fired up on contingent charging (pt.1)

With typical flair, committee chairman Frank Field declared that he 'struggled to fathom' how the Financial Conduct Authority (FCA) had not yet banned contingent charging on pension transfers.

'I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing ‘impartial’ advice on a decision like this,' he said.

'It is bad enough failing properly to enforce the rules there are, but when the rules are this weak...?'

 

Field fired up on contingent charging (pt.2)

Continuing, Field said that he could not see 'much evidence' of the FCA working to protect the people it was supposed to:

'Our financial services regulator has been rejigged and rebranded but I can’t see much evidence of it working better for the people it is meant to protect: individuals making life-changing financial decisions,' he said.

'To propose, as the FCA did in July last year, abandoning the advisor presumption against transferring out of a gold-plated, stable, indexed pension scheme: it really makes you wonder whose side they’re on.'

'Fiddling while Rome burns'

Field went on to specifically criticise The Pensions Regulator, which is responsible for the regulation of workplace and occupational pension schemes.

'Once again we find The Pensions Regulator fiddling while Rome burns, when it should have seen this rip-off coming,' he said.

'Given a choice between two defined benefit options worse that what they had been promised, with precious little support in making that choice, many steelworkers were drawn to the superficially attractive third option.'

'This is the first deal like this, but there will be more. All the responsible authorities must act, now, to stop more people being cheated. We will be asking all those involved to report back to us on the changes they will make, promptly, to stop this happening again.'

FCA now under pressure: recommendations (pt.1)

The committee's report now formally recommends that the FCA bans contingent charging on defined benefit (DB) pension transfers.

What the press release said:

'Genuine independence is not compatible with a charging model that only rewards advisers for recommending a particular course of action.'

What the report said:

'We heard that contingent fees in respect of BSPS clients were typically around 2% of the transfer value - £8,000 on a cash equivalent transfer value (CETV) of £400,000 - and could be as high as 4%.'

'IFAs could also receive further fees for providing an ongoing advice service. This created an 'inbuilt bias' towards promoting transfers. Henry Tapper recommended there was "little evidence" of some advisers recommending anything other than transfers.'

'A degree and orienteering': recommendations (pt.2)

The committee also asked the FCA to crteate an online register of advisers doing DB advice.

What the press release said:

'[The FCA should] create an online register of advisers and their current status in providing advice that does not require “a degree and orienteering skills” to use.'

What the report said:

'The FCA’s online register is the main public source of information about firms it regulates. It sets out what services financial advisers are authorised to provide and any regulatory action being taken against them.'

'British Steel Pension Scheme (BSPS) trustees and members were both reliant on the register to identify which firms could conduct pension transfer business. Both, however, said it was difficult to use.'

'Rich Caddy told us that the complex system of menus and drop down boxes meant “you need some sort of degree to find a suitably qualified financial adviser.”'

'The Personal Investment Management & Financial Advice Association (PIMFA), a trade body, criticised the register for its “inadequate” search facility and excessive use of “regulatory jargon” in the register entries.'

Reckless abandon: recommendations (pt.3)

Field's committee has forcefully recommended that the FCA should not dilute its standard recommendation that advisers should assume a transfer is not in the best interests of a client.

What the press release said:

'Do not - as proposed in their 2017 consultation - drop the requirement on advisers to start from the presumption that a DB transfer is a bad idea for their client: in most cases it is. In light of the BSPS experience abandoning this safeguard looks reckless.'

What the report said:

'In its June 2017 consultation paper on transfer advice, the FCA reiterated its view that staying in a DB pension will be “in the best interests of most consumers”.This view is shared by TPR and the Pension Protection Fund (PPF).'

'Despite this, the FCA proposed to remove the requirement that the adviser starts with the assumption that a transfer would be unsuitable for the client.'

'It argued that the increased flexibility available under pension freedoms “had altered the options available and for some consumers a transfer may now be suitable when it wasn’t previously.”'

Let down: TPR urged to conduct a review

TPR has not escaped the recommendations of the committee either. The regulator must now come up with an 'action plan,' it said.

What the press release said:

'TPR [should] conduct a review, listening to BSPS members and learning the lessons of how they were let down.'

What the report said:

'It was the responsibility of TPR, who oversee trustees and signed off the Regulated Apportionment Arrangement (RAA), to monitor the situation and ensure that members were not left in the dark.'

'Along with the PPF and the Government, they afforded insufficient priority to ensuring the steelworkers were adequately informed. While the setting up of a dedicated TPAS helpline was welcome, it came too late.'

Vultures circling: TPR must do better

In its report, the committee also demanded that TPR improve its performance in future by making sure that pension schemes properly inform their members of any changes to their scheme or benefits entitlement. 

What the press release said:

'[TPR must] ensure all schemes in future are equipped to give members [a] full picture of the options they are choosing between.'

What the report said:

'It was the responsibility of TPR, who oversee trustees and signed off the RAA, to monitor the situation and ensure that members were not left in the dark. 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.'

'Under pension freedoms, a transfer offered members control over a substantial sum of their own money. Reputable local IFAs were overwhelmed by demand for advice. The circumstances surrounding the BSPS created perfect conditions for vultures to take advantage.'

A wealth of errors

The committee has roundly condemned Darren Reynolds, managing director of now-liquidated IFA firm Active Wealth, who wrote to the committee defending his firm's involvement in BSPS transfers.

What the press release said:

'Darren Reynolds of Active Wealth has produced a defence of his practices, published as evidence on the Committee website, but which has been roundly denounced in a series of individual letters to the Committee Chair from those advised by the firm.'

'These will be considered by the committee and possibly referred to the FCA for further investigation.'

You can read our coverage of Active Wealth's involvement in this saga - along with the curious case of some sausages and chips - here.

What the commentators say (pt.1)

Former pensions minister Steve Webb (pictured), whose responsibilities within government used to include schemes such as BSPS, said that BSPS and British Steel itself had 'failed to make sure that all workers had access to high quality impartial advice.'

However, he argued that the 'right response' was not to water down the flexibilities introduced by the government while he was a minister.

'The British Steel Pension Scheme and the employer failed to make sure that all workers had access to high quality impartial advice about their pensions and failed to make sure they had enough time to make calm, well-informed choices about whether or not to transfer,' he said.

'But the right response to what went wrong is not to clamp down on people’s freedoms to choose what to do with their pensions. Many hundreds of British Steel workers did take good advice and chose either to transfer or not on the basis of that advice, used reputable pension providers where they did transfer and are happy with the outcome. It is important not to throw the baby out with the bath water in this case.'

What the commentators say (pt.2)

Tom McPhail, head of policy at discount broker Hargreaves Lansdown, said that it 'shouldn't have been a surprise' to regulatory authorities that the flexibilities introduced by the pension freedoms would spur people to want to transfer out.

'It is extraordinary that even after the pension misselling scandal of the 1990s, the members of the British Steel scheme could be let down so badly,' he said.

'Following the introduction of the pension freedoms, with transfer values inflated by low interest rates and uncertainty over the scheme’s future, it shouldn’t have come as a surprise that many members were interested in transferring out. The scheme trustees and administrators should surely have taken more responsibility for protecting members interests and shielding them from unscrupulous advisers.'

'Contingent charging, where the adviser is actively incentivised to recommend a transfer, creates a glaring misalignment of interest between adviser and their client; it would be remarkable if it didn’t lead to at least some misselling.'

TPR defends itself

In its defence, TPR argued that it had fulfilled its basic responsibilities:

'We fulfilled our primary role by evaluating and approving this complex restructuring of the BSPS including obtaining £550m for the scheme,' it said.

'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.'

TPR added that it had also tried to tackle 'unscrupulous advisers:

'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. And, while TPR does not regulate financial advice, we wrote jointly with the FCA and TPAS to members to flag potential risks.'

'We note the committee’s recommendations and are continuing to work more closely with the FCA to protect pension savers.'

What the Twittersphere thinks (pt.1):

IFA Al Rush, who launched his own campaign to try and help steel workers with pro-bono advice, said that the liquidation of Active Wealth gave him 'little pleasure.'

What the Twittersphere thinks (pt.2):

Former IFA and New Model Adviser® cover star Jason Butler, who now works as a personal finance expert and public speaker, had strong words for the FCA a few weeks ago...

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