You may be thinking what problem? Not everyone keeps a close eye on the financial news, but there has been an issue with the British Steel pension scheme going back to 2016 when it first emerged that that the £14bn scheme, which had 122,000 members across the UK, was in trouble.
Scheme Members were advised to seek financial advice about their pensions.
By early 2018, 97,000 scheme members had responded. 86 per cent opted for the new scheme and a further 14 per cent (roughly 30,000) fell into the Pension Protection Fund.
That left 7,700 workers who had seen a financial adviser, and who had transferred out of the defined benefit scheme at the IFAs’ recommendations. Worth £2.8 billion at an average transfer value of £350,000.
For some, the decision to transfer was the right one. However, for many other scheme members the advice to transfer was wrong and many saw their pension values significantly reduced. It is these losses that have been making the headlines leading to questions about why it happened and what can be done to avoid it happening again next time?
Remembering that not all the advice to transfer was wrong of course, only some of it.
One of the key issues identified from the time was the threat of the scheme entering into the Pension Protection Fund (PPF) with the prospect of members losing a percentage of the value of their pension pots if it did. The Pension Trustees wrote to members about the formation of a second scheme, and it seems that they highlighted the downside of entering the PPF which caused concerns for many members. It seems that some advisers also played on these fears to “promote” transfers.
In the end the scheme did enter the PPF but with guarantees that the value would not fall, although there was little communication about the new scheme for almost two years leaving members in the dark.
Although advisers have been heavily criticised some of the scheme members do blame the trustees for not responding to the number of transfer requests that were flooding in at the time.
On the back of this it emerged that there were also a significant number of unregulated introducers making sales presentations to members using high pressure sales tactics and then “selling” referrals on to advisers.
It seems that concerns had been raised quite early in the process and several local MPs had got involved. Unfortunately, the FCA did not make any proactive moves until long after the transfers had been made, when it was much too late to save individual pension losses.
Since 2018, the FCA has certainly got involved and made several changes to the Defined Benefit transfer process resulting in over 700 adviser firms withdrawing from providing advice. But their ability to act quickly remains in question.
Of course, the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service (FOS) have also been involved having received a significant number of claims in relation to the scheme.
So, what lessons have been learned and what will or can the FCA do differently in the future in similar circumstances?
One suggestion put forward is to default all pension transfers into new schemes or the PPF in future similar circumstances unless members can show that they would be improving their situation by opting out.
Another area needing to be addressed is the market for unregulated introducers and their ability to misrepresent themselves as advisers. It would be very easy for the FCA to ban advisers from receiving referrals from unregulated introducers.
There are also calls for better financial education so that people better understand their options, but this is a longer term aim rather than something which could have helped at the time.
The Trustees of pension scheme also need better guidelines and procedures. For example, it would be helpful if Trustees provided better guidance to members by signposting them to a panel of approved advisers. They should also be better equipped to spot the warning signs and respond more quickly, for example to an unusual increase in the number of pension transfer requests. Some of these steps have already been taken for example by the Trustees in the Rolls Royce pension scheme last year.