Around 7,800 British Steel workers have been convinced to transfer their pensions to a riskier scheme and some have lost up to £489,000, Parliament’s Public Accounts Committee has said.
It also found that the Financial Conduct Authority (FCA), which regulated the 69 financial services firms involved, “failed to take preventive measures” to protect workers from “serious financial harm”.
The workers were on a defined-benefit pension scheme, which provides a guaranteed income based on an individual’s salary and the number of years worked, but were told to switch to a defined-contribution scheme, which is held in investments, by advisers who were incentivized by earning higher fees.
It came after the British Steel Pension Scheme was restructured in 2017 as its main sponsor, Tata Steel UK, decided to sever ties due to serious financial difficulties.
According to a new report from the PAC, the regulator has always been “late in its response to unsuitable pension transfer advice”, despite being aware of the potential risks for consumers following a change in pension legislation in 2015.
The FCA provided ‘inappropriate’ advice to around half (47%) of British Steel workers, due to a lack of knowledge about the pension scheme they were being asked to switch to, and used a ‘touch slight” when it came to the advisers.
Only one financial services company has been fined and a quarter of workers have filed complaints with the FCA, but “many have not been fully compensated”.
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PAC said those given bad advice could be entitled to around £71.2million in compensation from advisers, under a scheme offered by the FCA, but that figure “could end to be considerably higher”.
However, some companies have gone insolvent, so some of the money will have to be collected through a Financial Services Compensation Scheme levy, which forces compliant companies to bear the cost of improper advice.
Dame Meg Hillier MP, Chair of the Public Accounts Committee (PAC), said: “Whatever your views on the retirement freedoms introduced in 2015, they clearly carried significant risk.
“Yet two years later the FCA was still lagging behind when the British Steel pension scheme was opened up to unscrupulous financial advisers to transfer the life savings of steelworkers from a gold-plated scheme to any “investment” producing the highest advisory fees.
“The then head of the FCA, Andrew Bailey, stressed to the PAC that these were ‘the most complicated financial decisions a person can make in their lifetime’ – so how come even with a two-year delay, the organization was unprepared: first for the systematic mis-selling that stole thousands of their savings and retirement plans, and then to come up with a difficult-to-navigate recourse process for the people concerned.
“The workers of this country need a regulator who protects them”
Nick Smith, MP for Blaenau Gwent, has campaigned on behalf of former British Steel workers for four years.
“The FCA failed to get this scandal under control at first, was slow to respond afterwards and not enough was done to hold those responsible to account,” he said.
“The workers of this country need a regulator who protects them and who is able to take strong action against the financial sharks who would target them.”
The FCA did not apologize, but said it would “carefully review” the report.
A spokeswoman added: “We have proposed a scheme which is expected to see consultancies pay over £70m in compensation to metalworkers. This is on top of the over £70m who have already And people don’t have to wait for the system to be in place to file a complaint.
“We have also ensured that only companies with the right skills and experience can provide advice on pension transfers in the future – more than 700 companies have stopped doing so because of our work. We also learned some real lessons for the future, including improving the way we work with other regulators.