An independent review of the recent restructuring of the British Steel Pension Scheme (BSPS) has called for widespread legislative changes, and improved guidance to trustees to protect DB scheme members.
The review was commissioned by The Pensions Regulator, and was conducted by Caroline Rookes, former head of the Money Advice Service.
Its remit was to look at the communications and support given to steel workers during this process.
There had been concerns that many of these workers were persuaded to cash in valuable final salary benefits, rather than switch into the new scheme.
This has prompted the FCA action, and scrutiny from the DWP Select Committee. The Financial Services Compensation Scheme has paid out almost £1m to members who received poor advice on transferring out of this pension scheme.
However, while this review found that the “vast majority of members” received a good outcome from the restructuring exercise, it pointed out that this was a complex process – created stress and uncertainty for members.
The report made a number of recommendations to address these issues, and ensure other schemes are not hit with similar problems in future.
Rookes says she wants to see greater collaboration between the TPR, the FCA and the new single financial guidance body (formerly The Pensions Advisory Service).
Alongside this she called for the TPR to discuss with the DWP whether there was scope for legislation to simplify the choices in the event of a scheme restructure.
One of the key concerns related to cash transfers out of DB schemes. The review pointed out that the BSPS was “swamped” with cash transfer requests.
In total almost 20 per cent of eligible members in the BSPS had requested a cash transfer. This equated to almost 8,000 requests – a number that had not been anticipated by the trustees. She said this made it “the most problematic area” of this restructuring.
Rookes was critical about the information currently available on cash transfers on the regulators’ websites.
She called for this information to be reviewed, particularly in relation to adviser directories, which were described as not fit for purpose in some cases.
The review called for the TPR to explore ways to allow trustees or trade unions to identify a panel of advice firms that could assist members who were considering cashing in benefits.
This review also recommended new powers for the TPR to consider the “preparedness of a scheme” to handle the member consultation, and if this is deemed insufficient to delay or stop a restructure.
The review also called for updated guidance for trustees to enable them to plan a restructuring exercise, and to enable them to better support members better, particularly those considering cashing in benefits.
It called on the TPR to consider changing the basis of guidance to trustees, so that rather than focusing on the minimum needed to comply with regulations, it should be aimed at best practice.
Rookes says: “TPR guidance should be aimed at creating what good looks like.”
In order to achieve this is should collate examples of best practice guidelines to consider the best way to disseminate this information to trustees.
The review also wants to see the TPR develop a planning guide for trustees which maps out warning signs and different stages of a restructuring exercise.
In her summary Rookes says the intention of this review was not “to blame the employer, trustees or any other organisation” but to look at whether there are lessons that can be learned for schemes in similar circumstances.
The review made a range of further recommendations on how legislation could be adapted to ensure better outcomes for members in such complex cases.
These included allowing “deemed consent” where savers are automatically transferred into a new scheme if they would clearly be better off as a result – or delaying regulated apportionment arrangements (RAAs) if schemes are not prepared for the member consultation exercise.
Royal London director of policy Sir Steve Webb says: “Thousands of steelworkers have a right to feel let down by those whose jobs were to protect their interests.
“The trustees of the pension scheme failed to make sure that workers had access to high-quality impartial advice when making decisions about their pensions – and regulators were slow to act when it became clear that things were going wrong.”