Select committee: Members let down by response to British Steel

The Work and Pensions Committee, chaired by Labour MP Frank Field, said regulators’ and lawmakers’ handling of BSPS’ demise had left members in the dark about their options, and had done “too little too late” to stop unscrupulous advisers.

The trustee of the BSPS revealed at the end of January that 86 per cent of steelworkers who responded to the ‘Time to Choose’ consultation opted to move into a new scheme, dubbed BSPS 2, which would still be sponsored by Tata Steel UK but would provide lower benefits than originally promised.

Why again were they just sniffing around and not getting off their backsides and wading in?

Frank Field, Work and Pensions Committee

However, around 25,000 of the scheme’s 122,000 members did not respond to the consultation. This would include members who chose to transfer out, and those who defaulted into the Pension Protection Fund.

FCA should impose ban on contingent charging

Having taken evidence from members who were poorly advised, the report highlighted contingent charging – where an adviser is only paid if a transfer goes through – as a glaring conflict of interests, and called for a ban on the practice. It also recommended making the watchdog’s list of approved advisers more user friendly.

The FCA seemed to agree. “We believe the Committee’s recommendations are sensible,” a spokeperson said.

“We are also reviewing the rules that apply to firms advising on pension transfers, and will consider this report as part of this,” the spokesperson added.

Field, however, was not convinced the FCA had acted as quickly or proactively as it might have.

“They didn’t want to tell the committee the people who they thought shouldn’t be on the list of advisers,” he said. “The Treasury needs to say, ‘Look, which side are you on?’”

The FCA’s statement said it had taken “taken detailed, extensive and robust action on the British Steel Pension Scheme to help steelworkers” and that it “remains focused on ensuring consumers are protected”.

Regulator blasted for poor scheme oversight

The WPC was equally critical of the regulator. It recommended that TPR review the communications and support given to BSPS members, incorporating member testimony, and draw up an action plan to improve its processes in future.

Field said the watchdog’s response was indicative of its reactive approach, and hoped it would try to safeguard members from harm in the future.

“Why again were they just sniffing around and not getting off their backsides and wading in?” he asked. “It’s really like the police force that doesn’t do anything until someone has been murdered.”

The report highlighted gaps in data that led to members receiving incomplete benefit statements. It said given the imminent arrival of the pensions dashboard, the regulator should “require all schemes to be able to calculate what each member’s benefits would be under both statutory minimum indexation and PPF compensation rules”.

In a statement, a spokesperson for the regulator said it had fulfilled its primary duty in negotiating a regulated apportionment arrangement that was as fair as possible for all sides, and that it was not part of its remit to monitor transfer advice.

Nonetheless, it pointed to its work with the FCA, including flagging up concerns about transfers, and rejected the suggestion that member communications were inadequate. 

“We went to Port Talbot and took part in a discussion forum with scheme members and others,” the spokesperson said. “We reviewed communications sent to members and were satisfied they adequately warned of the dangers of transferring out of a DB scheme.” A spokesperson for the BSPS trustee echoed this assertion.

Data gaps are a fact of DB life

Data quality is often recognised to be poor in many defined benefit schemes, owing to the fact that most were set up in a pre-digital era and have limited means to afford cleansing exercises.

The unusual size of the BSPS made record-keeping even more tricky. Hugh Nolan, president of the Society of Pension Professionals and actuary at consultancy Spence & Partners, said this made it difficult to see clear areas of improvement for the regulator.

“Hard cases always make bad law, and British Steel is an exceptional case by virtue of size if nothing else,” he said.

“I’m not sure necessarily what benefits there are in being able to calculate the statutory minimum and PPF basis,” said David Brooks, technical director at consultancy Broadstone, although he said upcoming IORP II regulations mean data cleansing should be a priority for schemes.

He hoped for a “proportionate” response to the saga, and noted that the regulator had made a concerted effort to improve record-keeping for some time.

Does freedom and choice need an upgrade?

For Field, the outcomes generated for BSPS members are indicative of issues with the rules surrounding the freedom and choice regime.

Previous FCA research has shown that fewer than half of transfer advice processes can be confirmed as suitable, and the committee welcomed its decision to review the entire transfer advice market.

“The pension freedoms are surely good for people to have,” Field said. “What we actually need is the pension freedoms buttressed... people should have to, before acting, take good independent advice, and then it’s up to them.”

Tom McPhail, head of retirement policy at Hargreaves Lansdown, suggested this was not the answer to what he said were valid concerns about the decisions made under freedom and choice at retirement. Advice costs would be inappropriately high for the typical pot sizes of less than £15,000 being withdrawn currently.

“We are fairly rapidly coming to the conclusion that there’s a middle way that involves providers offering a default drawdown solution,” he said. These products would include both a default investment strategy and income strategy, in a bid to help savers make their money last.

Don’t be too suspicious of people wanting to transfer out of DB schemes, said Nolan.

He pointed to the average withdrawal size of £400,000 from the BSPS as being sufficient to have a good chance of making a success of drawdown, and asked “who are we to say they are wrong?”

“Frankly some of the noise we hear from government undermines the message about pensions and how good they are,” he said. “You can’t then turn around and say ‘Why are you transferring out of the scheme?’.”