The House of Commons’ Work and Pensions Committee report looking into the closure of the British Steel Pension Scheme (BSPS) has found that scheme members were not given enough information before being rushed into a decision.
Stuart Price, Partner and Actuary at pensions experts Quantum Advisory, summarises the findings: “The outcome of the report comes as no real surprise. It concluded that the process for members to decide whether to move to the new British Steel Pension Scheme (BSPS2) was hurried and the communication far too complex with not enough bespoke information. These factors contributed to many members transferring out of the scheme to a defined contribution arrangement, which was not in their best interest.
“Nearly all members would be better off moving to the BSPS2, but as formal consent from members was required to move to the new scheme, over 20,000 of the 124,000 members will now enter the Pension Protection Fund (PPF) as they did not respond to the communication that was issued to them. This outcome is extremely disappointing as the government was under pressure over a year ago to change the legislation so that members could automatically be transferred to a new arrangement where, in most circumstances, this would be beneficial to them. This is something that certainly needs to be addressed for the future.
“A number of members were ‘advised’ to transfer their benefits from the BSPS to a defined contribution arrangement. In most cases, this would not be the best option for them and the charges levied by the advisers in providing the ‘advice’ were too high, enticement methods not ethical and the investments chosen not suitable for the members. Similarly to events in the late 1980s and early 1990s when individuals were ill-advised to transfer their occupational pension scheme to a personal pension, I expect there to be another mis-selling scandal with BSPS members wanting compensation. However, this will be a long and complex process and will not help these individuals in the short-term.
“Looking ahead, there will no doubt be similar cases to the BSPS in the future, so lessons need to be learnt around processes and timings so that communications are simpler and there is more time for individuals to make a decision. Independent financial advisers need to be regulated more stringently so that advice given is in the best interest of the individual and that charges are proportionate to the advice given. If nothing is done to address these issues, the lack of trust with the UK pensions industry will grow and people may be deterred from saving for their retirement when in fact it should be the opposite.”
Stuart Price, Partner and Actuary at Quantum