British Steel review calls for better member support in restructuring

The independent review, authored by former Money Advice Service chief executive Caroline Rookes, was commissioned by the Pensions Regulator following a recommendation by the Work and Pensions Committee.

It includes recommendations for legislation to simplify the choices in the event of a restructuring – whether through allowing a partial default into a new scheme or setting requirements for a new scheme to provide better benefits than the Pension Protection Fund.

The BSPS restructuring did cause distress to many people – to members and their representatives

Caroline Rookes

The review also recommends that the regulator explore whether to require trustees to select a panel of trustworthy financial advisers for those transferring out of the scheme, and that the Financial Conduct Authority should make sure its adviser directories are fit for purpose.

A new power to consider the readiness of schemes for a regulated apportionment arrangement and to delay this event is also mooted.

Restructuring caused 'distress' for many

In August 2017, BSPS members were told that, if their employer's regulated apportionment arrangement was approved, they would be able to choose between moving into a new scheme – the BSPS2 – or into the Pension Protection Fund with the old scheme.

Terms of the RAA were confirmed the following month, and the ‘Time to Choose’ exercise ran from October to December 2017.

In the review, Rookes highlighted that it is clear from the select committee’s inquiry and talking to BSPS members that the BSPS restructuring “did cause distress to many people – to members and their representatives”.

She added that “some of this could be avoided in future if the lessons are learned”.

In addition to legislative changes, the report calls for more effective guidance for schemes on communication content, clarity and channels, as well as recommending a number of ideas for strengthening support for members thinking of taking a cash transfer.

Collaboration crucial

The review urged the Pensions Regulator, Financial Conduct Authority and Single Financial Guidance Body to work together to develop guidance for members, specifically and clearly aimed at transfers out of defined benefit schemes.

Rookes also recommended that the FCA and SFGB review their adviser directories and ensure they are fit for purpose – and that members of DB schemes should be directed to the adviser directory in the first instance.

Furthermore, she suggested that the pensions watchdog should explore whether there is a way to allow trustees or trade unions to identify a panel of financial advice companies that members can select from.

It encourages collaboration between regulators and public bodies, and calls for more and better guidance for trustees facing restructure and other major changes.

The Pensions Regulator, FCA and SFGB today issued a joint statement welcoming the review and outlining how they are “already working closely together to provide an increased level of support to trustees and scheme members where there is uncertainty around the future of a DB pension scheme”.

They also published a joint protocol to ensure they work in a coordinated way to support members.

“We are grateful to Caroline Rookes for identifying a number of useful themes in her review which will help ensure pension savers are less likely to make transfer choices which are not in their best interests. We will now work together with trustees and the government so that we can all address the review’s recommendations,” said TPR’s chief executive Lesley Titcomb.

Megan Butler, executive director of supervision for wholesale, investment and specialist at the FCA, said “The FCA stands by the action it took in those challenging times but, as with every case where we have had to intervene, there are always important lessons to be learnt.”

She added that "the FCA remains firmly committed to working with TPR and the Single Financial Guidance Body – and other organisations – to ensure we are all working together to continue to protect pension savers and take on board the lessons from British Steel", and that much of the improvement and collaboration projects are underway, and have been since earlier last year.

“However, Caroline has made some further recommendations that we will be discussing with our counterparts at TPR and the SFGB,” Butler added.

Majority happy with choice they made

Rookes’ report said it is important to note that over 80 per cent of members made an active choice, which is a good result.

Furthermore, the majority of members surveyed said they were happy with the choice they had made and the information they received.

BSPS trustee chairman Allan Johnston said: “Time to Choose was probably the largest pension consultation exercise of its type ever carried out in the UK. The results of the member survey conducted for the review are consistent with feedback received directly by the scheme and show that members were generally satisfied with the information provided and with the decisions they made.”

He added: “Undoubtedly, if it had been possible to take more time with Time to Choose, the member experience could have been improved. But the restructuring had to be completed to a very tight timetable. The trustee has made a number of suggestions for changes in the legal and regulatory framework that would give more time to other schemes in similar circumstances.”

Steve Webb, director of policy at Royal London, said that, in terms of the report’s recommendations on legislative changes, “the timing is good from the government’s point of view – if we think there might be a pensions bill in the next session of parliament… then if you’re ever going to ask for some legislative changes then now’s the time to do it”.

However, the report’s recommendation to look into whether there is any scope for legislation to simplify the choices in the event of a restructuring could be problematic.

“You have to legislate generically, you have to legislate in a way that applies legitimately to any arrangement”, the former pensions minister noted. Restructurings “are quite bespoke situations, so it’s quite hard to write an act of parliament that says, ‘This is always the right thing to do and this is never the right thing to do'”.

“Whether just giving them fewer choices would have produced a better outcome – I’m not sure,” Webb added.

Jon Greer, head of retirement policy at Quilter, said: “It was a very complex piece of work which they were trying to do – and the trustees were also, at the same time as this reorganisation, looking at setting up a brand new scheme too.”

One of the main issues regarding the BSPS restructuring was the fact that the “four bodies involved in relation to the CETV exercise… were uncoordinated and slow to get involved”, according to the report.

Greer said that this need for collaboration and involvement from regulators and other bodies earlier on in the process was a big lesson learnt.

Moreover, he stressed that “it’s absolutely key that trustees need to consider all the types of communication channels” when it comes to communicating with members on restructuring.