Another major financial mis-selling scandal is “already erupting” according to a report by MPs into British Steel’s pension scheme.
Members were exploited by “vulture” financial advisors and “apparently neglected” by government, Tata Steel and regulators, said the Work and Pensions Select Committee.
The UK government has yet to issue its response to the “neglect” claim.
The Pensions Regulator said it would continue to work to protect savers.
The British Steel Pension Scheme (BSPS) was closed after regulators accepted that Tata Steel UK would be insolvent if it continued to sponsor it.
It had a membership of 124,000 current and retired steelworkers and pension obligations of £14bn.
About 8,000 people are employed by Tata across England and Wales, including 3,500 in Port Talbot.
Members had to decide what to do with their pensions after the scheme was separated from Tata last September.
Between October and December 2017, they had a choice of entering into a new Tata-backed scheme, BSPS2, or the Pension Protection Fund (PPF).
Both were less generous than the scheme that closed but BSPS2 was better for the majority of people than the PPF.
A third option was transferring out of the scheme completely – a so-called DB transfer – but the committee said this is “not usually in someone’s interests”.
But circumstances surrounding the BSPS “created perfect conditions for vultures to take advantage”, the MPs concluded.
One Tata worker told the BBC he lost almost £200,000 by transferring out of the BSPS after seeking independent financial advice.
The committee noted that an outline plan to save Tata Steel UK, the “sponsor” of the BSPS, had been in place since May 2017.
But it said those signatories to the deal – Tata, the UK government and Pensions Regulator – had neglected the pension scheme’s members.
Committee chairman Frank Field said: “Once again we find the pensions regulator fiddling while Rome burns, when it should have seen this rip-off coming.”
He added: “All the responsible authorities must act, now, to stop more people being cheated.”
The financial advisers’ regulator, the Financial Conduct Authority (FCA), also faces serious criticism for how it handled concerns over mis-selling.
Other criticisms in the report were:
- Despite a “surge in interest” in DB transfers in April 2017, the FCA did not act until November, by which stage BSPS members were faced with a pressing deadline, creating “perfect conditions for vultures to take advantage”
- A communication plan by BSPS was “woefully inadequate”, under-resourced and unable to provide basic facts for members to make a complex choice. The report said it was the responsibility of the Pensions Regulator to ensure members were well-informed, but “all this failed”
- Around 25,000 scheme members did not make any choice, thought to include many very elderly or ill pensioners. These members will move into the PPF scheme. The report said the government had not implemented a system of “deemed consent” to ensure that any member who would have been obviously better off in BSPS2 would automatically be moved, and had not explained its decision. The report recommended the government should ensure deemed consent is in place for similar future deals
Responses to the findings:
The FCA said it was reviewing the rules that apply to firms advising on pension transfers.
“We believe the committee’s recommendations are sensible,” said a spokeswoman. “We are currently looking at the register to see how we can make it easier to use.”
It said it remained focused on ensuring consumers are protected.
The Pensions Regulator said it had fulfilled its primary role by evaluating and approving this complex restructuring of the scheme.
“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,” said a spokesman.
“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).”
Tata Steel said the consultation process was a major undertaking involving “complex financial detail”.
A spokesman said it was pleased so many pension scheme members made a positive choice to select the best scheme for their future.
“We were also pleased to note the trustee expects the new scheme to pass the agreed qualifying conditions to go forward,” he said.
The BSPS trustee welcomed the work being done to ensure that members taking transfers from defined benefit pension schemes “do so on the basis of suitable advice”.
He added that the actions of some financial advisors during the process was “something that the committee rightly highlights as a concern for all involved”.
A spokesman for the steel unions, including Community, said: “There is clear evidence from this report that some steelworkers were exploited and given poor advice on hugely important choices.
“Regulators need to toughen up when it comes to shutting down irresponsible financial advisers, and warning people about which firms to avoid.”
He said they would continue to support members who believe they have been ripped off “and will keep lobbying government and regulators to ensure measures are put in place so that such a scandal can never again be allowed to happen.”