The Financial Conduct Authority has published the final rules of a redress scheme for British Steel Pension Scheme members who transferred out between 2016 and 2018. Advisers must review the advice they gave and pay redress if money was lost due to unsuitable advice, with the FCA estimating that 1,100 steelworkers will receive about £49m in aggregate. The scheme will start on 28 February 2023. 

 

The cost of the redress scheme has come down from more than £71m in March as gilt yields have risen substantially since then. In total, firms are expected to pay redress of £33.6m, with the Financial Services Compensation Scheme paying another £15.4m in compensation where an adviser has gone out of business. The FCA said 90% of firms in the scheme are able to complete the scheme without becoming insolvent. 

 

   

Under the updated redress calculation rules, members will receive a top-up to their transferred out sum that will put them in a position to buy an annuity giving equivalent income to what they were entitled to before they left the BSPS. 

 

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

 

Sheldon Mills, executive director for consumers and competition at the FCA, stressed that the proportion of unsuitable advice given to steelworkers was “exceptionally high” compared with other cases.   

 

“Today we’re confirming the rules for the redress scheme, so that BSPS members can get the retirement they worked for,” he said. 

 

Mills warned: “We will be watching advisers closely and have put in place checks so that consumers can have confidence that they’re being treated fairly under the scheme.”  

 

Earlier this year, the watchdog required financial advice firms who advised steelworkers to not try to remove assets, sell claims to claims management firms or seek to liquidate the firm without notifying the FCA, having first warned them in late 2021. The FCA found that some firms shifted substantial amounts. Thirty investigations are underway, including one where the FCA sought an injunction to freeze assets, upheld by the court.  

   

 

Therese Chambers, the regulator’s director of consumer investments, said some of the investigations were at an advanced stage and she was hoping to be able to go public about them soon. 

 

The FCA is now proposing to extend its temporary BSPS asset retention rules so that the rules apply until firms have resolved all relevant cases.  

 

Redress payments will have to be calculated using the FCA’s bespoke tool. Advisers will also have to provide details of all cases rated as 'suitable' to the FCA so it can check if consumers would like the Financial Ombudsman Service to independently review their advice.  

 

Consumers should be contacted by their adviser between 28 February 2023 and 28 March, with advice being reviewed by the end of September 2023. Firms should provide consumers with their redress calculation by the end of December 2023, if consumers opt to receive it as a lump sum. If they opt to receive a payment into their pension they should receive the calculation by February 2024.   

Customers of firms that are no longer trading should make a claim with the FSCS.  
The FCA and the Treasury should consider whether there are lessons to be learnt from the British Steel pensions scandal, a report by the National Audit Office published in March this year said, making it clear that failures in the introduction of the pension freedoms were at the heart of the issue. It also said that the risk of large numbers of members transferring out of a DB scheme remains. 

 

The Pensions Regulator had commissioned its own review previously, which in 2019 found that while most BSPS members made the right choice for them in the restructuring exercise, transfer warning letters sent by regulators were “too little, too late”, as many members had already made up their minds, having been contacted by advisers before the scheme’s choice exercise started. 

 

     

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