Five years after the British Steel Pension Scheme scandal first erupted and an end to the saga is in sight for thousands of steelworkers wrongly advised to give up valuable guaranteed pensions.
The Financial Conduct Authority this month set out plans for a major intervention in the form of an industry-wide redress scheme for steelworkers who suffered financial losses after transferring their defined benefit pensions to riskier personal pensions.
The scheme could see around 1,400 steelworkers share in compensation of around £71m. But the door on this sorry saga will not fully close until the FCA addresses the systemic failings in the compensation already paid to many steelworkers.
So far around 2,050 steelworkers have lodged mis-selling complaints with the Financial Ombudsman or Financial Services Compensation Scheme, the lifeboat for customers of firms who have failed.
The FCA does not plan to revisit these claims, even though many inconsistencies and unfairnesses in payouts have been put to it over the years. These issues need to be reviewed for full and complete justice.
For those not fully familiar, the story of the biggest pension scandal in decades dates back to 2017-2018 when around 7,700 members of the British Steel Pension Scheme were recommended to transfer out of their defined benefit plan, following a major restructure of the scheme, prompted by their troubled employer Tata.
However the FCA later found that nearly half, or 48 per cent of transfer recommendations – made by registered advisers – were unsuitable with a cloud hanging over a further 32 per cent, where it could not be determined if the transfer should have gone ahead.
A 2018 report by MPs found that many steelworkers were “shamelessly bamboozled” by unscrupulous advisers, with many pensions ending up in “unsuitable funds characterised by high investment risk”, high management charges and punitive exit fees.
For many, the stress of having been mis-advised was compounded after they entered the compensation system by lodging a complaint with the FOS or FSCS. FOS received around 800 complaints while the FSCS received over 1,250 claims.
Steelworkers have been left baffled and angered by lottery-like redress arrangements that seem to have little regard for consistency of payouts or accountability when things don’t add up.
One such glaring case of injustice was Adrian Burns, a 44-year-old former BSPS member who was advised to transfer his £330,000 DB fund in 2017 by Wales-based IFA Active Wealth.
Adrian felt more secure about the move after he checked his adviser Darren Reynolds was listed on the FCA’s online register.
Reynolds was later given a 13-year ban as a director after costing hundreds of clients over £24m from their pension funds due to high risk unregulated investments, according to a government report.
As Active Wealth went into default before April 2019, Adrian’s compensation in the FSCS was capped at £50,000.
Compensation was later made more generous to £85,000 for firms that failed after the arbitrary date of April 2019. But Adrian – and hundreds of other Active Wealth clients – did not benefit from this. But Adrian was then hit by a second unfairness.
Adrian did not have an IFA in place, to keep an eye on his transferred fund, now invested in the stock market, when his claim was lodged with the FSCS because he was taking his time to find a professional he trusted, after his bruising experience with Active Wealth.
But this wise caution would cost Adrian tens of thousands less in redress.
Little did he know that the FSCS takes ongoing advice fees – which can be a significant weight on a retirement fund – into account when calculating compensation.
But the FSCS did not make this important factor well known to potential claimants – who it acknowledged were vulnerable due to having mis-sold their pensions. Adrian wasn’t the only one to get caught in this trap. Following pressure the FSCS updated its website to make clearer the role of ongoing fees in its redress calculations, a tacit acknowledgement of the shortfall in its client communications.
But it refused to do the right thing and review the cases of Adrian, and others, adversely affected by its poor communications. This remains a serious injustice.
Another very serious unfairness issue was how the FCA handled its decision to change the formula for FSCS redress calculations in 2021. As a result of this decision, more than 100 claims that were settled after January 1 last year were reviewed, resulting in uplifts of thousands of pounds in most cases. However, claims settled before the arbitrary date of January 1 were not reviewed.
Michael Divetta, 47, a former BSPS member, complained to the FSCS after his £4,000 payout missed the January cut-off by weeks. “If you’re lucky enough, you win the £85,000 jackpot,” said Divetta. It is not just the steelworkers who have complained about glaring issues with the redress system.
In March the National Audit Office found steelworkers had been short-changed around £18m in compensation they were owed, due to the FSCS cap. Steelworkers are right to be angry about these unaddressed issues and
they should not settle for justice on the cheap. The FCA should revisit settled claims so the door can be fully closed on this sorry saga
for all.