Thousands of British steelworkers may be entitled to compensation for poor pension transfer advice, according to the Financial Conduct Authority.
In its largest ever intervention over pension mis-selling in a single company retirement scheme, the regulator is sending letters to 7,700 former and current steelworkers, warning that those who have transferred out of the British Steel Pension Scheme since 2017 may have received unsuitable advice.
“Our findings are sufficiently concerning that we have taken the formal step of contacting you directly and encouraging you to act,” said the letter, signed by Megan Butler, executive director of supervision with the FCA. “You should check the advice you were given and, where appropriate, complain in order to seek any compensation you are potentially due.”
Although the FCA advises that most people are better off keeping a “defined benefit” pension rather than transferring the pot to a riskier pension arrangement, the BSPS members opted to transfer out of their scheme on the advice of authorised financial advisers. The average value of the transfers was £400,000.
In its letter, the FCA said a review of a sample of files found only a fifth of the transfer advice provided to BSPS members “appeared to be suitable” for the client. It advised: “we encourage you to act; if you do nothing, you may end up with less money during your retirement than you should have done.”
Mick McAteer, co-director of the Financial Inclusion Centre, a think-tank, and a former FCA board member, estimated the compensation bill could total more than £350m, on the basis that 80 per cent of members may have been given bad advice. The average value of awards so far made to BSPS members is £56,000.
Compensation is awarded by the Financial Ombudsman Service, unless the adviser has gone bankrupt, in which case it is awarded by the Financial Services Compensation Scheme.
“The figures could be much higher if the amount of financial harm caused in the case of BSPS is higher than the average of £56,000 awarded so far by the Financial Ombudsman Service,” warned Mr McAteer. “Some of the individual transfers involved were huge.”
Nick Smith, MP for Blaenau Gwent, who has many former BSPS members in his constituency, welcomed the FCA’s letter but said the intervention was overdue.
“This crisis first broke over two years ago,” said Mr Smith. “It was clear from an early stage that former steelworkers had been targeted, so the FCA could and should have taken this action far earlier. It should not have taken so long to get to this point, and I hope that these injustices will be treated with greater urgency going forward.”
The action comes nearly three years after The Pensions Regulator allowed the giant BSPS to be spun off from Tata Steel, its struggling sponsoring employer.
As part of the restructuring, 42,000 members of BSPS were given three months to decide whether to stay in the scheme, or take a lump sum and transfer their benefits to a riskier defined contribution plan.
Nearly 8,000 members, or 20 per cent of those eligible, opted to transfer.
In 2017, a parliamentary select committee said the steelworkers had been “woefully” under-supported in making “complex” decisions about what to do with their pension.
The work and pensions committee said many who transferred their pensions had been preyed upon by “unscrupulous” advisers and were “shamelessly bamboozled” into placing their cash in unsuitable, high risk funds with punitive exit fees.