Over 70% of British Steel Pension Scheme Clients Received No Compensation

Way back in 2018, an alledged mis-selling scandal involving British Steel Pension Scheme (BSPS) members caused havoc in the financial services industry.  Alledgedly, 9,000 British Steel workers were mis-sold pension transfers out of the ‘gold plated’, defined benefit BSPS scheme and moved to non-guaranteed defined contribution, investment linked pensions that can fall in value as well as rise.

At the time, the government was negotiating, via the ‘back door’ for Indian and Chinese steel groups to rescue British Steel with government grants but also allowed for the main BSPS to go into liquidation and dump pension liabilities onto the Pension Protection Fund (PPF – the company pension compensation fund).  In short, come and safe British Steel and all those jobs, we’ll give you millions and we’ll dump the liabilities on other pension schemes paying the PPF levy.  The PPF only protects with 90% compensation of what you would have got.  Much in the same way as Austin Rover Group (bought by the Chinese) and now Longbridge (Birmingham) has gone, it was wasteland and now it is a housing estate with shopping complexes.

Much was made at the time of mis-selling and workers losing guaranteed pensions.  Court cases, FCA regulations, government intervention, compensation redress schemes set up, some ‘rogue advisers’ proescuted and ‘going under’, Financial Ombudsman Service compensation limits increased and the whole financial adviser industry being hit with massive increases in professional indemnity insurance premiums (in some cases 5 X more) and ever stricter rules on when it was suitable to out of defined benefit schemes.

Resulting in:

Most financial advisers stopped offering Defined Benefit Transfer Advice (as did we) meaning consumers have even less choice and making it extremely expensive if you can find a financial adviser that will advise you.

Reality Check

• Investment performance has been good over the last few years meaning those that did transfer out have even bigger pension pots.
• Annuity rates have increased meaning people with bigger pension pots can buy even bigger guaranteed annuity rate pensions than they would have had if they had stayed with the BSPS compensation scheme and taken their annuity that way.
• Transfer out values today have halved compered to 2018 meaning those that did transfer out on 2017-2019 got double what they would have done today due to higher annuity rates
• 70% of BSPS claimants clearly appear to be better off given they have not received compensation/redress.
• The FCA was expecting over £70m in compensation payments to be made, the reality is that is has just been over £8m. 
  • That's around 11.5% of the damage estimate meaning the FCA overestimated the damage and had irreversably hurt the industry much more than it should have done with the result now bieng a lack of DB advisers available to the public today to offer quality advice.
  • That's an average of less than £1,000 compensation per total number of transfers. What a waste given it has cost £billions in time, insurance and legal costs.

Comment

We believe this was all about the government and regulator trying to control your pension and prevent you taking control yourself.  They wanted to stop massive outflows of money away from the BSPS (or any other defined benefit scheme) to try and keep those businesses afloat that were not funding their pension scheme properly.  British Home Stores (BHS) is a classic example of ‘big business’ not funding pension liabilituies properly and folding.

Why would they want you to be in control of your £50,000, £100,000, £200,000, £500,000 or even £1m pension fund, when they could remain in control?

We hope a lesson has been learned in that Government/FCA making judgement calls early on is not enough to mean bad advice has been given and they should use this experience in that compensation can only be awared when you are due to take your pension.

Incidentally, we only advised on 1 BSPS transfer out and both we and the client are happy that the advice was good and in the client’s best interests, so we are not really involved and we have not written this news item with any vexation but only as a warning that both the Regulator and the Government should keep ‘one eye on the future’ when making assumptions that advice was poor when in fact this cannot be known until the day a pension scheme member retires.