British steel pension scheme members have been “shamelessly” exploited by “dubious financial advisers”, according to a report by MPs, who have warned of “another major mis-selling scandal”.
In August 2017 Tata Steel, which sponsored the £15bn scheme, struck a deal to restructure it in a move described as offering greater certainty for its 130,000 members.
It followed a crisis at Britain’s biggest steel producer in 2016, when Tata put its entire UK operations up for sale amid a deteriorating industry environment.
The company’s British employees voted to accept proposals to close the existing pension scheme to new contributions, in exchange for greater certainty about the future of its 8,500-strong workforce.
Members were given the option of moving to two other pension schemes – the Pension Protection Fund (PPF) or a new final salary scheme, BSPS2, both offering less generous payouts.
Those who had not reached pension age had a third option of switching to a defined contribution scheme, known as a DB transfer.
But the report by the Work and Pensions Select Committee criticised the Pensions Regulator and Financial Conduct Authority, accusing “all those bodies with a duty to watch and act” of failing to ensure “members were not left in the dark”.
It said “faced with making a life-changing choice in a hurry”, many were attracted to the third option which meant giving up generous and stable benefits in favour of a riskier investment.
The report said the circumstances surrounding the restructuring of the scheme created the “perfect conditions for vultures to take advantage”.
“Many BSPS members were shamelessly bamboozled by advisers into signing up to ongoing adviser fees and unsuitable funds, characterised by high investment risk, high management charges and punitive exit fees.”
It warned: “Another major mis-selling scandal is already erupting and we therefore call on the relevant bodies to treat this as such and take urgent action.”
Since March last year the scheme has processed 2,600 pension transfers equating to a total value of £1.1bn.
The average value of BSPS pension benefits transferred out was £400,000. In around 20 cases the transfer value exceeded £1m.
Labour MP Frank Field, chairman of the committee, said: “Once again we find the Pensions Regulator fiddling while Rome burns, when it should have seen this rip-off coming.
“All the responsible authorities must act, now, to stop more people being cheated.”
The committee recommended the Pensions Regulator conduct a review to learn lessons, and the FCA create an online register of advisers and their current status.
A spokesman for the Pensions Regulator said it “reviewed communications sent to members and were satisfied they adequately warned of the dangers of transferring out of a DB 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.
An FCA spokeswoman said it had taken “detailed, extensive and robust action” on the BSPS to help steelworkers and it has been carrying out considerable work within its remit on DB transfer advice.
She said the FCA is also reviewing rules applying to firms advising on pension transfers, adding: “The FCA remains focused on ensuring consumers are protected.”