No pension transfer, no fee – a bargain or an expensive mistake for British Steel members?
The recent experience of some members of the British Steel Pension Scheme (BSPS) is a warning for anyone contemplating transferring out of a final salary scheme.
The BSPS separated from Tata Steel UK in September 2017 resulting in the BSPS winding-up; over 130,000 individuals have their pensions in this scheme and must now decide whether to leave their pensions in the BSPS, which will be incorporated into the Pension Protection Fund (the PPF, a fund which provides for individuals whose pension scheme fails) or to move to a new Tata Steel UK scheme, which is expected to be similar to the old BSPS but with fewer benefits. The 40,000 not yet drawing on their pension have the further option of taking their pension as a cash lump sum and transferring it into a personal pension scheme (losing the defined benefit scheme’s guaranteed monthly income when they retire).
When considering such an important decision, good quality financial advice is worth paying for; even if that advice results in a recommendation to stay in the scheme.
The Financial Conduct Authority (FCA) is investigating firms which have provided, or continue to provide, financial advice to individuals with pensions in the BSPS. At least four firms have stopped advising on pension arrangements following visits from the FCA and investigations are ongoing. Reportedly hundreds of steel workers have received inappropriate advice to transfer out of their final salary schemes, apparently some firms (charging on a ‘contingent’ basis) only recommended that clients transfer out of the BSPS.
Advisers charging on a contingent basis are faced with an obvious potential conflict of interest. The analysis that is required to establish whether it is appropriate to transfer out of a final salary scheme can be nuanced and time intensive. If an adviser will only be paid for advice if it results in a recommendation to transfer, it is questionable whether that advice is truly independent.
Legally, it is arguable whether or not a financial adviser owes fiduciary duties, however the regulatory regime makes it abundantly clear that a firm must act in its client’s best interests.
The FCA can take action against the funds and financial advisers but the individuals who followed questionable advice are unable to easily ‘undo’ the transfer and move their pensions back. Their only option is to consider approaching the financial ombudsman or taking action against the financial advisers/firms directly. The steelworkers’ union ‘Community’ has indicated it will take legal action on behalf of members if evidence suggests they were misled by their financial advisers.