When the British Steel Pension Scheme (BSPS) was set to close at the end of 2017, British steel workers had to decide which scheme their pensions would be moved to. Workers were given three options, transferring to the Pension Protection Fund (PPF), a government-operated pension lifeboat, transferring to the new BSPS2 scheme, or transferring into a personal pension.
Instead of opting for the replacement final salary scheme, BSPS 2, or the PPF, thousands of steel workers relied on advice that transferring into a personal pension was best for them. However, transferring your pension out of a defined benefit pension and losing the associated benefits, is seldom a good idea and the starting presumption should always be that it is not in your best interests.
In 2020, the Financial Conduct Authority (FCA), the industry’s regulator and watchdog, sent letters to nearly 8,000 steelworkers who were advised to transfer out of the BSPS and into personal pensions. In their letter, the FCA stated that many people that transferred out of the BSPS since 2017 may have received unsuitable financial advice and could therefore be entitled to claim compensation.
The scandal has received widespread attention, even prompting MP’s Nick Smith and Stephen Kinnock to write to the head of the FCA urging stronger action be taken. They want to see the watchdog implement a specific redress scheme for those who transferred out of BSPS, as it did for investors in the failed Arch Cru funds in 2013. Their letter argues this approach would see all former BSPS members receive letters from the FCA asking if they would like their case reviewed, which in turn could boost the number of steelworkers making complaints and receiving compensation where appropriate.
The FCA assessed a sample of the advice provided to former members of the BSPS and found that in only 21% of cases they reviewed, the advice given appeared to be suitable. This means to suggest that in the remaining 79% of cases, the advice was either unsuitable, or unclear.
According to some reports, a number of Independent Financial Advisers seized the opportunity to “cash in” on the situation by aggressively marketing transfer-out services to steelworkers. In doing so, they were able to charge high flat fees or receive a percentage of the value of the funds being transferred.