The National Audit Office has published its report on its investigation into the British Steel Pension Scheme. When BSPS was restructured in 2017 44,000 of its members had the opportunity to transfer out of the scheme, and those that wished to do so were required to take advice from an authorised adviser where the value of their pension was over £30,000. Almost 8,000 members made this choice, 95% of whose decisions were informed by financial advisers.
NAO notes that members had a limited time to decide what to do, and other reviews have noted that the communication and support they received was not adequate to help them inform their decision so they were susceptible to misselling. The NAO says the financial advice market was not prepared for the impact of the restructure and firms in affected areas saw rapid growth in requests for DB transfer advice which they struggled to cope with. The report says that most advisers were financially incentivised at the time to recommend transferring out, and FCA estimates that 79% of members were were advised did transfer out.
FCA says it had limited visibility of the level of members interested in transferring out but has now found that financial advice was unsuitable in 47% of cases and unclear in a further 32%. FCA held workshops for firms and wrote to members thinking of transferring out to urge them to be careful.
FCA has now issued £1.3m fines and has 30 ongoing investigations, and has changed its approach to regulating the pensions advice market in response to the BSPS case.
Now, 25% of members who transferred out have complained, and FCA is still deciding whether to implement a consumer redress scheme which would make all involved firms review their advice and potentially offer compensation. Its consultation is due by the end of March.
Figures show that £18m of redress has been lost because advisers have gone into liquidation, and 22% of complaints made to FOS have been passed to the FSCS – the average loss is £82,000 which is within FSCS scope, but some consumers have lost a lot more. 72% of FOS cases and 40% FSCS claims have come through CMCs or lawyers, who charge fees. Additionally, many insurers now refuse to cover DB advice risks and those that will still offer cover do so at significantly increased premiums.
The head of the NAO notes that it is clear many people have not been appropriately compensated. It is not the place of this report to assess whether the findings of unsuitability are justified.
The report is largely forward looking, to suggest what might strengthen preventative procedures for the future.