The British Steel Pension Scheme has processed £1.1bn of defined benefit pension transfers since March 2017, with the Work and Pensions Committee stating that members have been “shamefully bamboozled”.
Publishing its latest damming report on the BSPS, the Committee said that “dubious advisers exploited BSPS members for personal gain” with the help of “parasitical introducers”, as it warned that another “major misselling scandal” is already erupting.
The report noted how unregulated introducers were incentivised to introduce as many steelworkers as possible to consider transfers. The advisers used contingent pricing, which means they will only take a fee if the transfer goes ahead. This led to them pushing the transfers, often against the interests of the members, the Committee said.
“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,” the report added.
Since March 2017 the scheme has processed 2,600 pension transfers equating to £1.1bn, according to data revealed by the scheme’s trustees to the Committee on the 8 February 2018. The average value of BSPS pension benefits transferred out was £400,000; in around 20 cases the transfer value exceeded £1m. The Committee heard of advice fees typically around 2 per cent of the transfer value - with and that the receiving funds sometimes imposed high annual charges and ‘punitive’ exit penalties ranging from 5 per cent to as high as 10 per cent.
The report detailed how the circumstances surrounding the BSPS created the “perfect conditions for vultures to take advantage”. It noted that many members had lost trust in the sponsor company and its pension pledges.
“The scheme was under-resourced and unable to provide basic facts to inform a complex choice. Its members were apparently neglected by the company, government, and TPR in their focus on the deal to keep the company going. A member communication plan sanctioned by TPR proved woefully inadequate. Against hard deadlines to choose one of two options worse than their promised pension, many members of working age were attracted to a third option.
“There was a surge in interest in DB transfers, seemingly unforeseen by all involved. Under pension freedoms, a transfer offered members control over a substantial sum of their own money. Foregoing a generous, indexed and secure retirement income is not, however, the right option for most people. Reputable local IFAs were overwhelmed by demand for advice.”
Char of the Committee Frank Field said he struggles to fathom why contingent fees have ever been considered as an acceptable basis for providing impartial advice. “It is bad enough failing properly to enforce the rules there are, but when the rules are this weak? 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."
Field added that the outlines of a deal to save the sponsoring employer of the BSPS, Tata Steel UK, have been in place since May 2017. The scheme’s members were “woefully under-supported” in making a decision: by the sponsor company, the government and The Pensions Regulator. It was the responsibility of TPR, who oversee trustees and signed off the deal to create a new pension scheme, to monitor the situation and ensure that members were not left in the dark. All this failed, the report said.
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