Time to tame the pension sharks
As steelworkers are targeted in major mis-selling scandal, MPs declare it’s...
STEELWORKERS were preyed upon by vultures in a major pensions mis- selling scandal that MPs warn could spiral out of control.
Tata Steel workers were ‘shamelessly bamboozled’ into signing up to unsuitable funds, says Parliament’s Work and Pensions Committee, amid fears many have lost thousands of pounds.
MPs blasted the Financial Conduct Authority (FCA) and The Pensions Regulator for failing to protect thousands of workers in south Wales who had to decide on the future of their nest eggs quickly when the British Steel Pension Scheme (BSPS) shut last year.
‘Another major mis- selling scandal is already erupting and requires urgent action,’ they said.
It comes amid a boom in pension transfers following reforms in April 2015, sparking fears more could lose out. The committee is now calling for a ban on advisers’ fees which are contingent on transfers, amid concerns they are incentivised to offer bad advice.
It follows research from the FCA showing that only half of defined benefit transfer advice nationwide meets its standards.
Committee chairman Frank Field MP said: ‘ I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing impartial advice on a decision like this. All the responsible authorities must act to stop more people being cheated.’
The committee has been investigating the closure of BSPS. Tata Steel, owner of the Port Talbot steelworks, closed the heavily indebted scheme to save its business. Workers and pensioners could choose between joining a new scheme set up by Tata, sticking with the BSPS as it went into the Pension Protection Fund –both of which would leave most worse off than the original scheme – or transferring to a new scheme of their own choosing.
However, the 124,000 making a life-changing decision triggered a feeding frenzy among financial advisers. There were reports of some making 700-mile round trips to tout for business, some trying to entice workers at the factory gates, and sharks luring workers into meetings with ‘sausage in a basket’ meals.
Transferring away is not usually in someone’s interests, the committee said, as it means giving up generous and stable benefits for riskier investment. Nonetheless, since March 2017, BSPS has processed 2,600 pension transfers equating to a total value of £1.1bn, with an average value of £400,000. In around 20 cases the transfer value exceeded £1m.
The committee heard of fees, typically around 2pc of the transfer value, and punitive exit penalties of 5pc to 10pc. Several firms have been suspended.
The committee said: ‘ The circumstances surrounding the BSPS created perfect conditions for vultures to take advantage.
‘This was seemingly unforeseen by all those bodies with a duty to watch and act. The committee saw worrying evidence that BSPS members have, over the past year, been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called introducers.’
The Pensions Regulator said it had reviewed communications sent to members about options and was satisfied they were warned of the dangers of poor financial advice and scams.