The Financial Conduct Authority is consulting on a compensation scheme for members of the British Steel Pension Scheme who received unsuitable advice to transfer out, estimating that 1,400 of them will receive £71.2m in compensation. The scheme is expected to be in place by early 2023, with consumers starting to receive compensation from late 2023. 

 

Nearly 8,000 defined benefit members transferred out of the British Steel scheme between 2016 and 2018 because of a restructuring exercise. Many lost significant sums of money as a result of being given unsuitable advice. The FCA found that almost half (46%) of the advice it reviewed relating to BSPS was unsuitable, and in another 14% the suitability was not clear. 

 

Earlier this month, the National Audit Office published a report into the scandal which found that only a small proportion of the members who could seek redress have done so. 

   

     

The Public Accounts Committee also launched an inquiry this month and will question the chief executives of the FCA, the Financial Ombudsman Service and the Financial Services Compensation Scheme on the FCA’s regulation of financial advice in the BSPS case and its plans for compensating steelworkers. 

   

     

The FCA, having discussed it with stakeholders and sought Queen’s Counsel opinion, is now proposing a scheme to cover those who transferred out between 26 May 2016 and 29 March 2018. If the scheme goes ahead after the consultation, rules will set out how advisers must determine whether they gave unsuitable advice and whether they must pay compensation.  

 

Sheldon Mills, executive director for consumers and competition at the FCA, said: “The circumstances around British Steel Pension Scheme transfers were exceptional, with former members receiving significantly higher levels of unsuitable advice compared with other cases. We want individuals who lost out financially after receiving unsuitable advice to receive compensation through our scheme.” 

 

 

In its paper, the regulator admitted that while steelworkers generally supported the proposals, they had raised concerns about firms ‘marking their own homework’ and being incentivised to assess the advice as suitable when it was not. They noted also that people might end up with inconsistent outcomes or redress amounts.  

 

Trade bodies on the other hand were concerned about redress schemes being used more widely for DB transfer cases, the impact on FSCS of this, and how the BSPS work links to a separate FCA review of the redress calculation methodology for pension transfer cases generally. The risk that firms could wrongly say that the consumer was insistent was also highlighted. 

 

The FCA said independent checks and monitoring will be put in place to ensure that firms comply with the rules. In December, it sent a ‘Dear CEO’ letter to those it believes to be scope, following up on Thursday with another letter warning these firms that they must not try to remove assets, sell claims to claims management firms or seek to liquidate the firm without notifying the FCA. The watchdog already has an asset freeze in place on one firm and is investigating 30 individuals or businesses in relation with BSPS. 

 

Consumers can make a complaint now rather than waiting for the outcome of the consultation, and the FCA pointed out that those who received advice in 2016 will be nearing the six-year time limit, recommending that they check their advice now. However, if the FCA does implement the redress scheme, firms will be required to review advice given to consumers even if the time limits for making a claim run out after the scheme starts. 

 

The FCA will launch a consultation on how firms must calculate redress under the proposed BSPS scheme in July 2022 and will publish an updated version of its ‘Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers' in the summer. 

 

 

Given the scale of pension transfer misselling that has occurred, a formal redress scheme for British Steel Pension Scheme members was always likely to be needed, said Tom Selby, head of retirement policy at investment platform AJ Bell. 

 

However, he did not see a systemic or cultural issue at play, blaming the mis-selling on “bad apples” who “have sadly tarnished the reputation of the entire sector”. 

 

Selby said British Steel has further damaged the reputation of the pensions sector: “Sadly, scandals such as Robert Maxwell at the Daily Mirror, Equitable Life and now British Steel tend to live long in the memory. As a result, the wider pensions industry will now need to redouble efforts to ensure people aren’t put off saving for retirement altogether.” 

 

The consultation closes on 30 June, but comments on the high‑level proposals for redress calculations – which will flow into a further consultation in July – must be sent by 12 May.