The transfer advice given to some British Steel Pension Scheme members was the most serious regulatory failure for nearly 30 years, says Tim Middleton from the Pensions Management Institute.
To continue operating in the UK, Tata Steel, sponsor of the BSPS, needed to be freed from its obligations to the pension scheme. The Pensions Regulator facilitated this through a rarely used legal mechanism – a regulated apportionment arrangement.
It is surely time to consider the reintroduction of a form of capped drawdown and the minimum income requirement for flexi-access drawdown
BSPS members were given the choice of transferring into a replacement scheme or having responsibility for their benefits transferred to the Pension Protection Fund.
There was, of course, a third option. Members could transfer their pensions from their existing defined benefit scheme to a defined contribution arrangement, which was an attractive proposal to those seeking to benefit from the flexibility offered by freedom and choice.
What followed was arguably the most serious regulatory failure for nearly 30 years. Following an investigation by the Work and Pensions Committee, it emerged that around 700 members were advised to transfer to DC schemes and, in many cases, the advice provided poor. What does this say about professional standards?
It is possible to identify specific individuals who are accused of unprofessional or unethical behaviour; but following the Retail Distribution Review, which called for higher professional standards of advisers and the formal separation of advisers from products that they recommend, a scandal on this scale should not have been possible.
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It is also time to review the freedom and choice reforms, which have played a major part in incentivising DB members to join the stampede for transfer values. Abandoning the security offered by DB should not be taken lightly, but the siren lure of immediately accessible cash sums has caused many to expose themselves to an uncertain future.
It takes political courage to acknowledge that giving the public something that is popular is not necessarily the same as acting in their best interests. At the very least, it is surely time to consider the reintroduction of a form of capped drawdown and the minimum income requirement for flexi-access drawdown.
The public not only deserves better protection from the unscrupulous, but also a pensions system that actively discourages poor decisions.
Tim Middleton is technical consultant at the Pensions Management Institute
