Steel workers ‘shamelessly bamboozled’ in pensions scandal - MPs

The Work and Pensions Committee said it had received worrying evidence about financial advice provided to members of the BSPS, which includes hundreds of members in the Black Country.

While only a handful of steel industry sites remain, in Wednesfield, Wednesbury, Walsall and Brierly Hill, a decade ago there were a dozen employing more than a thousand people, many of them signed up to the British Steel Pension Scheme. Nationwide, the scheme had 122,000 members last year.

But the MP's committee says BSPS members had, over the past year, "been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called 'introducers'".

Steelworkers yet to reach pension age were encouraged to transfer their defined benefit pension rights into a defined contribution pension, known as making a DB transfer.

DB transfers may offer people readier access to cash and can be in the interests of people with a low life expectancy.

But transferring away from a DB pension or a "final salary" scheme is not usually in someone's interests, the committee said - as it means giving up generous and stable benefits in favour of a riskier investment.

The report said: "The circumstances surrounding the BSPS created perfect conditions for vultures to take advantage."

Unsuitable advice on DB transfers is not only confined to BSPS members, the report warned.

It continued: "Research by the Financial Conduct Authority (FCA), which regulates advisers, shows that only half of such advice nationwide meets its standards.

"Yet over 100,000 people a year are taking DB transfers on the back of this advice."

The report said: "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."

The report said the outlines of a deal to save the sponsoring employer of the BSPS, Tata Steel UK, had been in place since May.

Members were asked to choose between two pension schemes which offered inferior benefits to the BSPS - the Pension Protection Fund (PPF) or a new scheme, BSPS2, it said.

But many scheme members had lost trust and a member communication plan proved "woefully inadequate".

The Pensions Regulator was responsible for ensuring members were not left in the dark.

But the report continued: "All this failed. Instead, faced with making a life-changing choice in a hurry, many members were attracted to a third option of a DB transfer.

"This was seemingly unforeseen by all those bodies with a duty to watch and act."

The report said many BSPS members were "shamelessly bamboozled" into signing up to ongoing adviser fees and unsuitable funds with high investment risks, high management charges and punitive exit fees.

Since March 2017, the scheme has processed 2,600 pension transfers equating to a total value of £1.1 billion, according to data revealed on February 8 by the scheme trustees.

The average value of BSPS pension benefits transferred out was £400,000. In around 20 cases the transfer value exceeded £1 million.

The committee heard of advice fees typically around 2% of the transfer value and "punitive" exit penalties ranging from 5% to as high as 10%.

Among its recommendations, the committee said the Pensions Regulator should conduct a review to learn lessons.

An online register of advisers and their current status should also be created by the FCA, it said.

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."

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

A spokesman for the Pensions Regulator said it had reviewed communications sent to members about their options and was satisfied they properly warned of the dangers of poor financial advice and scams.

He said: "We encouraged members of the BSPS scheme to engage with the consultation process.

"Our activities included taking part in a panel discussion event in Port Talbot last December, writing to all members of the scheme, and publicising the issues in the local press and on social media."

The regulator plans to publish a joint strategy later this year tackling key risks facing the pensions sector.

Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said: "It is important not to throw the baby out with the bath water in this case.

"The right lesson is to clamp down on those who seek to exploit people and scam them out of their pension savings, not to deny workers the chance to reshape their retirement plans if they wish to do so on the basis of impartial expert advice."