A pension scandal is brewing in Port Talbot, as steelworkers’ defined benefit scheme is restructured. Here’s how the story has developed.
Scandal in the making
This year’s restructuring of the British Steel Pension Scheme (BSPS), the savings pot for workers at the Port Talbot steelworks, followed nearly 12 months of negotiations and helped to lift the threat of closure that had loomed over the factory.
Union members voted to accept the closure of the BSPS, which paved the way for Indian conglomerate Tata, which runs the steelworks, to merge its European steel business with German steelmaker ThyssenKrupp.
That means the scheme will fall into the Pension Protection Fund, the lifeboat for failed corporate pension plans, while a new defined benefit scheme (BSPS 2) will be set up but with lower increases in income.
Members have two options: fall into the PPF or move into the new scheme, while many have a third: take their benefits as a cash lump sum and transfer into a private pension. It’s this last option that has sparked a growing pension scandal, as Citywire Money sister publication New Model Adviser®has been reporting.
Here’s how the story has evolved so far…
40,000 members need advice
Citywire’s first report on the British Steel Pension Scheme (BSPS) saga came on 25 October, with a piece on which defined benefit schemes were being targeted by advisers.
Union Prospect said it was concerned about financial advice firms going to ‘great efforts to speak to members’.
Darren Lloyd Thomas, director of Pembrokeshire-based Thomas and Thomas Finance, said many steelworkers from Port Talbot had contacted him about transfers, but he said he was ‘very nervous’ about this work because the members had very little investing experience.
The scale of the BSPS matter was brought home two weeks later with a report by pensions expert Henry Tapper who said around 80% of 40,000 BSPS members were looking to transfer out (according to a Facebook poll).
Part of the reason for this surge in transfer requests was following a consultation which meant all members had until 11 December to decide if they went into the Pension Protection Fund or the new BSPS 2 scheme. Both had less generous benefits than the original scheme.
No room at the inn
As the 11 December loomed for the 130,000 members to decide to go into the PPF or BSPS 2, another deadline added to the tension for the members who could still take a transfer.
For these 40,000 members yet to retire, many of them received their cash equivalent transfer values (CETVs) at the start of September (the trustees released many following funding negotiations with sponsoring employer Tata Steel over the summer). These CETVs had a three-month deadline, meaning they would expire at around the same time as the deadline to decide which scheme members went into.
With a huge uptick in steelworkers set on taking their transfer, local advisers could not cope with the demand. Around the end of October and start of November many of these firms stopped taking new business because they were ‘overwhelmed’.
This meant for the steelworkers who had made up their minds they wanted a transfer, many went to ‘travelling advice firms’ who had come to South Wales from other areas of the UK.
‘We have people coming from outside the area and harvesting as many members as they can,’ retired steelworker Stefan Zaitschenko revealed.
With thousands of steelworkers facing a bottleneck, Henry Tapper, director of First Actuarial and Alastair Rush, managing director of advice firm Echelon Wealthcare, visited Port Talbot on 8 November and reported back on some of the advice the members were getting.
In an excellent blog post, Cost and value of advice in Port Talbot, Tapper found many steelworkers said they did not understand the risks of drawdown, thought insurer Prudential’s popular PruFunds offered a guaranteed return and could not articulate why they were advised to transfer out. The report also talked about advisers travelling down to South Wales and offering ‘chicken in a basket’ defined benefit transfer meetings.
The next couple of weeks saw Twitter filled with more stories about steelworkers and their experiences with advisers.
Many reports coming out of Port Talbot and other British Steel areas were that some advice firms were using marketing techniques such as leafleting and ‘chicken and chips’ meetings to win over steelworkers as clients.
On 17 November it was reported that national advice firm True Potential was handing out leaflets to steelworkers advertising its DB transfer service.
A spokesman for the firm said it only recommended transfers when ‘our qualified specialists are satisfied that it is the right course of action for the client’.
The regulator acts
By this stage the BSPS situation started to get wider attention.
During the Work and Pensions Select Committee pension freedoms inquiry MPs grilled the Financial Conduct Authority (FCA) over what it was doing about advisers targeting the scheme.
FCA director of strategy and competition Christopher Woolard told MPs the regulator had started a programme of visiting advisers in the Port Talbot area and ‘reminding them of their requirements’.
On 17 November an email was sent to advisers in the Swansea area requesting they attend a training seminar on DB transfers.
With the public spotlight fixed firmly on the steelworkers pension situation the regulator made the decision to act proactively over the scheme. The question would later be whether it should have done so sooner.
A pivotal moment
Around mid-November the British Steel story accelerated with updates and news coming through hourly.
One of the biggest moments in the saga was when Active Wealth (UK) came to voluntary agreement with the FCA to stop defined benefit transfer advice on 28 November following concerns over the advice it had been giving steelworkers.
This was the first time the regulator had stepped in over a specific firm over British Steel advice; it would not be the last.
News at six
By now the British Steel situation was getting attention from the mainstream media; the story made the BBC Six O’clock News and would later receive coverage on Channel 4 News as well as most major newspapers.
A brief piece of respite for steelworkers came on 6 December when the BSPS scheme extended the deadline for members who had transfer values by around six weeks to the end of January.
This gave thousands of steelworkers a little more time to decide but the biggest issue was facing the members who had already transferred but were now concerned about the advice they had received and the funds they had been placed into.
Cost of advice
One of the biggest concerns for people who had transferred out was what they had paid for the transfer advice and the subsequent fund charges on the assets they were moved to.
A report by the New Model Adviser® found many members were unhappy with national advice group Lighthouse’s defined benefit transfer charges with multiple sources saying the firm was charging 3% initial fees.
Many clients of Active Wealth (the first firm which agreed to an FCA permission restriction) were moved into funds which levied a 5% charge if they wanted to leave in the first year.
Active Wealth was not the only firm the FCA intervened over; so far six firms have agreed to stop pension transfers with the FCA, although this may well not be the final total.
Some firms also made the conscious decision not to operate in this space any longer – national advice group St James’s Place announced on 13 December it would no longer be accepting new British Steel transfers as it deemed them too risky.
MPs step it up
Everything was building up to 13 December when MPs had called in steelworkers, unions, the trustees, the FCA and most interestingly the director of Active Wealth UK, Darren Reynolds, and connected unregulated introducer Celtic Wealth Management.
Surprisingly the advice firm and introducer did not attend what would inevitably be a grilling from MPs, led by Frank Field (pictured).
Instead MPs, Field in particular, focused their wrath on Megan Butler, director of supervision of the FCA.
Butler received a particularly tough line of questions from Field about the names of the firms which the FCA had intervened over to stop them carrying out more transfers. Butler said she could not name these firms initially, which Field took objection to.
In the end, the FCA took some blunt criticism from Field.
Sausages not chicken
The British Steel story took an interesting twist when unregulated introducer, Celtic Wealth Management, and connected advice firm Active Wealth (UK), responded to MPs letters asking why they did not attend the evidence session.
In its letter, Celtic accused the media and others of ‘scaremongering’ about the business and its dealings with members of the scheme.
The firm’s managing director Clive Howells also refuted suggestions the firm held ‘chicken and chips’ meetings with steelworkers, claiming chicken was never served.
‘A few meetings were arranged in a local public house where a large plate of chips and sausages were supplied. Never chicken and chips,’ the letter to MPs stressed.
While almost every headline around British Steel was a dagger to the reputation of the pensions industry, there was at least one positive news story.
Led by Rush of Echelon Wealthcare, advisers from across the country joined forces to offer steelworkers free guidance on 11 and 12 December as part of Operation Chive, standing for counselling, help, information, volunteer exchange. The feedback from the event so far has been overwhelmingly positive.
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