Pension members ‘bamboozled’–MPs

MONEY: A pensions mis-selling scandal is erupting according to MPs, who said British Steel Pension Scheme members had been “shamelessly bamboozled”.

The MPs said it had received worrying evidence about advice for members of the BSPS.

A MAJOR pensions mis-selling scandal is erupting according to MPs, who said British Steel Pension Scheme (BSPS) members had been “shamelessly bamboozled”.

The Work and Pensions Committee said it had received worrying evidence about financial advice provided to members of the BSPS. BSPS members had, over the past year, “been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called ‘introducers’”, it said.

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. 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.”

A spokesman for the Pensions Regulator said it is working more closely with other regulators to protect pension savers. He said: “We fulfilled our primary role by evaluating and approving this complex restructuring of the BSPS including obtaining £550m for the scheme. As part of this rare restructuring, which prevented the company becoming insolvent, a new pension scheme was offered to members as an alternative to entry to the PPF. We believe this was the best possible outcome for everyone involved in what was a very challenging situation, bringing greater certainty for thousands of scheme members.”

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

Another major mis-selling scandal is already erupting...

The Work and Pensions Committee report