MPs call for contingent charging ban after British Steel crisis

MPs call for contingent charging ban after British Steel crisis

Former British Steel workers have been "shamelessly bamboozled" by financial advisers into transferring their pensions and badly let down by regulators that should have better protected them, according to an influential parliamentary committee.

In the report released this week, the committee blasts The Pensions Regulator and the FCA for their handling of the "major misselling scandal" relating to the British Steel Pensions Scheme.

BSPS members had, over the past year, "been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called "introducers", it said.

Since March previous year the scheme has processed 2,600 pension transfers equating to a total value of £1.1bn.

The average value was £400,000 but in around 20 cases it was more than £1m.

MPs said a defined-benefit transfer is not usually in someone's interests because it means giving up generous, indexed and stable benefits in favour of funds often characterised by high investment risk, high management charges and punitive exit fees ranging from 5 per cent to 10 per cent.

The Committee is now calling for the banning of contingent charging - where advisers only receive payment when transfers go ahead - which it sees as a "key driver" of poor advice.

He added: "It has always been clear that ministers were asleep at the wheel, choosing time and time again to ignore our warnings and those from steelworkers, their unions and pensions experts - that people risked being cheated out of their pensions".

Those who had not reached pension age had a third option of switching to a defined contribution scheme, known as a DB transfer.

Committee chairman Frank Field said: "Once again we find the pensions regulator fiddling while Rome burns, when it should have seen this rip-off coming".

'This is the first deal like this, but there will be more.

He continued: "All the responsible authorities must act, now, to stop more people being cheated".

He said they would continue to support members who believe they have been ripped off "and will keep lobbying government and regulators to ensure measures are put in place so that such a scandal can never again be allowed to happen".

Work and Pensions Select Committee chair, Frank Field said: "I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing "impartial" advice on a decision like this".

The statement says: "We have also taken detailed, extensive and robust action on the British Steel Pension Scheme to help steelworkers and we are pleased this has been recognised".

A communication plan by BSPS was "woefully inadequate", under-resourced and unable to provide basic facts for members to make a complex choice.

The Pensions Regulator said it had actively helped tackle unscrupulous financial advisers who were exploiting the situation and that it would work more closely with the FCA to protect pension savers. We are now looking at the Register to see how we can make it easier to use.

The FCA said it was reviewing the rules that apply to firms advising on pension transfers.

A TPR spokesman says: "We worked closely with the British Steel Pension Scheme trustee following the complex restructuring of the pension scheme which we approved in August past year". The two options were the Pension Protection Fund (PPF) or a new scheme called BSPS2, the report said.

"We believe this was the best possible outcome for everyone involved in what was a very challenging situation, bringing greater certainty for thousands of scheme members", said a spokesman. Additionally, it found advice fees were typically around 2% of the transfer value.

Tata Steel workers at Port Talbot, Wales. "We reviewed communications sent to members and were satisfied they adequately warned of the dangers of transferring out of a defined benefit scheme".

"And, while TPR does not regulate financial advice, we wrote jointly with the FCA and TPAS to members to flag potential risks", he added.

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"BSPS trustees and members were both reliant on the register to identify which firms could conduct pension transfer business", it said.

Financial advisers targeted the workers and encouraged them to opt out of this scheme, even though in many cases it was not in the worker's best interests.