Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

FSCS goes to great lengths to tell story behind DB advice claims

Today the FSCS published a lengthy ‘summary note’ detailing the history of British Steel pension transfers. Is it laying the groundwork for huge payouts?

The Financial Services Compensation Scheme (FSCS) has set out how it will compensate clients mis-sold pension transfer advice by collapsed IFA Active Wealth.

New Model Adviser® revealed Active Wealth it as the first firm to cease pension transfer business following intervention by the Financial Conduct Authority over advice given in relation to the British Steel Pension Scheme (BSPS).

Active Wealth then entered the public spotlight when it was called to give evidence to MPs. Its clients predominantly found their pension funds invested through the online platform Vega Algorithms into funds run by Newscape Capital, called 5alpha Conservative and 5alpha Adventurous. This investment went through discretionary fund manager Gallium Fund Solutions. These investments also carried a 5% charge for leaving.

Active Wealth went into liquidation in February, meaning outstanding claims would likely fall on the FSCS.

In May the FSCS explicitly linked the demise of Active Wealth to an increase in the amount advisers pay towards the scheme. The FSCS blamed a general rise in DB related claims for a £52 million increase in the FSCS levy. But explicitly named Active Wealth as one of the firms ‘which advised British Steel workers, among others, to transfer their DB pension schemes into Sipp.’

Today the FSCS published a lengthy ‘summary note’ detailing the history of British Steel pension transfers, the FCA’s position on transfer suitability and the actions of Active Wealth in advising members to transfer out.

The Financial Services Compensation Scheme (FSCS) has set out how it will compensate clients mis-sold pension transfer advice by collapsed IFA Active Wealth.

New Model Adviser® revealed Active Wealth it as the first firm to cease pension transfer business following intervention by the Financial Conduct Authority over advice given in relation to the British Steel Pension Scheme (BSPS).

Active Wealth then entered the public spotlight when it was called to give evidence to MPs. Its clients predominantly found their pension funds invested through the online platform Vega Algorithms into funds run by Newscape Capital, called 5alpha Conservative and 5alpha Adventurous. This investment went through discretionary fund manager Gallium Fund Solutions. These investments also carried a 5% charge for leaving.

Active Wealth went into liquidation in February, meaning outstanding claims would likely fall on the FSCS.

In May the FSCS explicitly linked the demise of Active Wealth to an increase in the amount advisers pay towards the scheme. The FSCS blamed a general rise in DB related claims for a £52 million increase in the FSCS levy. But explicitly named Active Wealth as one of the firms ‘which advised British Steel workers, among others, to transfer their DB pension schemes into Sipp.’

Today the FSCS published a lengthy ‘summary note’ detailing the history of British Steel pension transfers, the FCA’s position on transfer suitability and the actions of Active Wealth in advising members to transfer out.

The FSCS was required to make a 'determination' regarding whether or not to pay compensation.

It said it had 'conducted a thorough examination of the claims it has received against Active Wealth to date, and is satisfied that there are claims where the conduct of Active Wealth gives rise to a civil liability in respect of which compensation is payable, on the basis summarised below.'

 

In late 2017, members of the existing British Steel pension scheme were presented asked to choose between transferring into a new British Steel pension scheme (BSPS2), remaining in the existing scheme (thereby ending up in the Pension Protection Fund), or transferring out of the scheme altogether.

It said: 'FSCS understands that Active Wealth advised a number of members to transfer their accrued pension benefits out of the existing British Steel pension scheme and into private arrangements, including Sipps.

'In some of these cases, the advice to transfer was unsuitable due to the nature of the accrued benefits which could have been carried forward into BSPS2 and which are unlikely to be matched through the private arrangement which Active Wealth recommended.'

The FSCS notes that in a June 2017 consultation paper the FCA had concluded 'that the transfer out of a defined benefit pension scheme historically has been unlikely to be in the consumer’s best interests'.

It is worth remembering it was in that same consultation that the FCA suggested dropping guidance that advisers should start from the assumption that a DB  transfer would be 'unsuitable' for a client.

The regulator suggested replacing its guidance with a new statement in the Handbook: that in most cases it will be 'likely' that retaining safeguarded benefits will be in the client's best interests.

But this was before the British Steel Pension Scheme saga broke out, and the regulator came under fire from MPs on the Work and Pensions Select Committee.

In March this year, the FCA U-turned on the proposal. 

Committee chair Frank Field specifically targeted the proposal, saying: 'To propose, as the FCA did in July last year, abandoning the adviser presumption against transferring out of a gold-plated, stable, indexed pension scheme: it really makes you wonder whose side they’re on.'

The FSCS's note does reference Field's committee, but got its name wrong.

It said: 'The Treasury Select Committee paper published in February 2018 indicated that the vast majority of members would have been better off had they transferred into BSPS2 rather than the PPF'.

The report was in fact very strongly worded and focussed much of its criticism of the two regulators with jurisdiction in this area: the FCA and The Pensions Regulator.

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

 

 

The FSCS goes on to state very explictly the basis of claims against Active Wealth.

'In such cases, FSCS considers that Active Wealth breached its obligations under COBS, giving rise to a claim for breach of statutory duty. In particular, FSCS considers that Active Wealth breached its obligations under COBS 9.2.1R(1), which requires a firm to take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client.

'In addition, or in the alternative, FSCS considers that such transfer advice was negligent, on the basis that Active Wealth failed to exercise reasonable care and skill when advising consumers, giving rise to a claim in tort.'

The FSCS concludes by setting out the basis on which it will caclulate payouts.

It said: 'Subject to the facts of each claim, given the role of Active Wealth and the requirements of the COMP Rules, FSCS considers that the calculation of compensation on the basis of a comparison between:

(i) the benefits that would have been available to the claimant had they transferred to BSPS2; and

(ii) the current value of their new pension, is likely to provide the claimant with fair compensation subject to the requirements of COMP 12.4.'

With all the effort the FSCS has gone to setting out the background and justification for claims, one must wonder: is it laying the groundwork for huge payouts?

Comment & analysis

Twitter