British Steel Pension Scheme Transfer Debate

Thousands of honest, hardworking steelworkers in my Aberavon constituency and across the country were left exposed to opportunistic and unscrupulous financial advisers. They sought to exploit the steelworkers when they were forced to decide whether to move to the British Steel Pension Scheme 2 or transfer out into another pension scheme.

So far £1.8 million in compensation has been paid out to 61 steelworkers who have been missold pensions. But this is just the tip of the iceberg. Around eight thousand steelworkers transferred out and more than half received unsuitable advice. In a Westminster Hall debate on the scandal I set out how we can get justice.

Stephen Kinnock: It is a pleasure to serve under your chairmanship, Mr Howarth. I pay tribute once again to my hon. Friend the Member for Blaenau Gwent (Nick Smith) for securing the debate and for all the work that he does. He and I have worked on the transfer of steelworker pensions out of BSPS since 2017, which was when all Tata Steel workers were forced to decide whether to move into the BSPS 2 or transfer out into another pension scheme. Given that trust between employees and employer at that point was fragile to say the least, it is not too surprising—completely understandable, in fact—that about 8,000 of the steelworkers decided against joining the BSPS 2. Little did they know that the vultures were circling.​

The behaviour of the unscrupulous financial advisers who ripped off these men and their families was completely inexcusable. The sheer size of the pension transfer exercise, the high level of publicity that the transfer received, and the workers’ deep-seated mistrust of the employer at that time, the trustees and Tata made for fertile territory for the parasites. The trade unions, steel MPs and the BSPS trustees all called on the Government to introduce a system of deemed consent regarding the transfer of BSPS 2. I was one of those MPs; I sent a letter to the then Pensions Minister, the right hon. Member for South West Hertfordshire (Mr Gauke). However, we were ignored and those hard-working, honest men were targeted, despite the fact that in only a very small number of cases was transferring out their best option.

These unscrupulous advisers are not stupid; they have behaved in a manner that is cunning, morally bankrupt and in many cases criminal. These events have had a dreadful effect on steelworkers in my constituency and their families. One man transferred £560,000 out on the strength of a 40-minute phone call with an “adviser”, who convinced him that it was what everyone was doing —40 years of service reduced to 40 minutes on the telephone. He believes that he was charged £11,000 to transfer out and for a 40-minute consultation. A man’s entire life plan was ruined by one phone call. Another was advised by one of the local advisers to transfer £348,858 out. He is now paying in excess of £3,500 a year in various costs and charges, as well as exposing himself to the risk of shortfall and dying after his pension pot runs out. That adviser played on the fear that BSPS was going to go into administration. They did not present my constituent with the facts or evidence, but approached the situation from the starting point that he wanted to transfer out, and facilitated that transfer without checking that it was in his best interest to do so.

Who were those unscrupulous financial advisers? The main culprits have been Active Wealth (UK) Ltd and a man named Darren Reynolds, who account for all but a couple of the 77 cases that have so far been taken up with the Financial Services Compensation Scheme. The FSCS has so far paid out £1.8 million to 61 of the 77 claimants, 16 of whom exceeded the £50,000 compensation limit—a limit that has since risen to £85,000. For those who have not been granted compensation, it is purely because they have not suffered a loss, not because they were not badly advised. I think I am right in saying that every single claimant was judged to have been badly advised.

It has been clear for some time that Active Wealth was just the tip of the iceberg. Several other advisers have been acting inappropriately; one did a lot of work in concert with a financial adviser who did not have the required permissions. The transfers were going through in about one hour, and some steelworkers never even met with an adviser. In another part of the country, in west Wales, an adviser had the required permissions, but by the end of 2017 had had their permissions to do pensions transfers revoked. Scores of steelworkers were days away from the transfer cut-off when that adviser circled in. Other advisers saw the writing on the wall and went into voluntary liquidation a few months ago. Those two advisers took their clients with them, literally next door.​

Other sales tactics were entirely risible. In one case, steelworkers were turning up at an adviser’s office over the weekend because he had told them that on Monday the pension company would be stopping distribution in the UK. He was literally telling them to hurry up and buy; he spent 30 minutes talking to each steelworker about their pension. It is notable that those financial advisers are finding it easier to simply lock up shop, close their business down and walk away than to face up to what they have done. That, in effect, then limits the redress that steelworkers can receive to £50,000—now up to £85,000—under the Financial Services Compensation Scheme, and from £150,000 under the Financial Ombudsman Service. In effect, we have a deep structural problem in the system, with financial advisers able simply to lock up shop and walk away, rather than give redress to the people they have ripped off. That is a fundamental question for the regulator.

These men were let down not just by rogue financial advisers, but by the authorities: the regulator, namely the Financial Conduct Authority, and the Government. The FCA was far too slow to see the obvious risks and act to protect steelworkers from these vultures. It knew from its investigation in 2017 that more than half of the transfer advice being given was not up to its own standards, but even that, apparently, did not raise any alarm bells or red flags. Most shockingly, certain financial advisers who were under investigation still appeared on the FCA website. The fact that that information was unavailable to the steelworkers feels utterly unjust.

The focus now is to raise awareness among steelworkers who have not spoken up but are due compensation, and to ask them to come forward and seek advice. Something that we have all observed is the role of shame in that. Many steelworkers are deeply embarrassed and ashamed that they have been ripped off. They have found it extremely difficult to share that difficult information with their families and spouses—one of the reasons that more men have not come forward.

I recognise that this is an emotionally sensitive matter for those involved, who may be reluctant to overturn the rock and look at what they might find underneath. However, it is right that we do everything that we can to get justice for these men. Investment companies and self-invested personal pension providers must no longer be able to look the other way and adopt a “see no evil, ask no questions, tell no lies” approach as long as the money continues to roll in. That approach is morally bankrupt.

Since the end of 2017, I have been working with my hon. Friends the Members for Blaenau Gwent and for Gower (Tonia Antoniazzi), lawyers and independent financial advisers in order to bang the drum and get these steelworkers the justice that they deserve. In November, 18 steelworkers came to Westminster to meet the regulators and the FSCS. We were pleased that the FSCS was able to revisit some of those adviser charges. We have also had very welcome promises from the FCA to run seminars in Port Talbot. Tata has also shown a willingness to facilitate meetings with the men—all in the cause of raising awareness. That means that we can at least be optimistic that getting these men some of the justice that they deserve may be possible.

Looking forward, our main focus must be, first, to continue to raise awareness among the steelworkers who may be affected. All firms that gave advice to transfer ​should verifiably send out a letter written by the FCA, strongly advising them to get the advice looked at and reminding them that they may be entitled to a form of financial top-up if they come forward. We will keep pressing the FSCS and FCA to offer the level of compensation package that the men who have come forward deserve and are due. We will also focus relentlessly on ensuring that unscrupulous advisers are exposed for what they are, and that every bit of insurance that they owe is claimed.

Secondly, we must do all we can to achieve legislative change. We need to ensure that individuals are automatically enrolled in new schemes, not left to be picked off mercilessly by rogue financial advisers in an environment that is characterised by uncertainty. Thirdly, we need to ensure that regulators do their jobs. Why the advisers that I mentioned were allowed to remain on the FCA website while under investigation seriously needs looking into.

Finally, it is worth noting that this issue does not affect steelworkers alone, and that pension mis-selling pay-outs in 2018 hit a whopping £40 million—double the figure for 2017. This is a national issue across many sectors, and it is up to the FCA and the Government to stand up and stick by workers and pensioners who have been wrongly advised, and do all they can to improve regulation and legislation for future generations. I look forward to working with those in this room on all of those challenges, and I thank hon. Members for their attention.

Stephen Kinnock: I congratulate my hon. Friend on securing this debate and pay tribute to him for his work for our constituents in this important area. At our recent meeting with the FCA, the issue of mandatory insurance wording came up. Those unscrupulous financial advisers are not taking out proper insurance—when they go bust, there is no source of compensation for the steelworkers who have been ripped off. Does my hon. Friend agree that the Minister needs to take urgent action to improve the regulatory framework, not least in the area of mandatory insurance wording?

Nick Smith: My hon. Friend makes an important point. Given reports that the FCA is investigating so-called introducers in connection with a major scam, the Government should now ensure that they, too, are regulated. The Treasury has to take action to ensure that financial advisers always have—this comes to my hon. Friend’s point—sufficient insurance to pay out, should they go into administration.

Stephen Kinnock: On the issue of further action, particularly regarding legislation, is it not vital that the Government recognise the huge risk in divesting pensions? If people are not defaulted into the new scheme that is being set up, and it is left completely open to them, there is a real risk that they will be easy prey for unscrupulous financial advisers. Should the Government not bring forward a statutory instrument that makes it the default to go into a new scheme, rather than to go into the Pension Protection Fund? That is particularly important when all the actuarial advice is that it would be best for the vast majority of those pensioners to have gone into the new scheme and that they should have just been defaulted into it. That can be done by statutory instrument.

Jack Dromey: My hon. Friend makes a powerful point. In the debate over the last 12 or 18 months, we have called that the progressive default option. There is no question but that it has enormous merits and it would be helpful if the Minister were to comment on it in his response.

Stephen Kinnock: The Minister has set out some of the structural and institutional issues and the lessons to be learned, but does he agree that when 8,000 members transfer out there is clearly a problem that needs to be addressed at source? Flagging up risks is all very well, but this is a case of shutting the door after the horse has bolted. We need a system that prevents such mass migration out, because once those kinds of numbers are involved it is highly likely that people will be going against actuarial advice that is in their best interests.

John Glen: I have listened carefully to the hon. Gentleman’s interventions, and he is right to say that 6.6% of the 122,000 individuals who had those pensions did transfer out, and that, in general, the default option would not be to transfer out of a DB scheme. There is work going on to develop pathways. I am not clear, given that it is not my direct area of responsibility, about the status of that work. I think, however, that there is a challenge, in the context of the policy on freedoms that is now well under way, about how to reconcile that freedom with making the decisions in question. Perhaps I might pivot over to consider the DC schemes. I think what is happening is that many people decide to take the 25% tax-free lump sum and then do not necessarily make appropriate, or the best, decisions on the remainder of that pot of money. Work is being done on that, but with respect to the specificity of the default option, I cannot give the hon. Gentleman a definitive response now.

Stephen Kinnock: On the issue of compensation, phoenixing and rogue financial advisers’ ability to just shut up shop and walk away, surely there is also a question of insurance. In our recent meeting with the FCA, which I found absolutely extraordinary, it was made clear to us that there appears to be no mandatory level of insurance that financial advisers must take out so that they can be held to account and insurance pay-outs can be made. My understanding is that, as soon as these advisers see the writing on the wall and know that people will come after them for compensation, they shut down, and there is no backstop—perhaps safety net is a better term—so that people who have been ripped off can go after them through an insurance process. Does not that extraordinary situation require a policy and legislative shift so that the FCA has a chance of doing its job in this area?

John Glen: I have been trying to find the note that one of my officials kindly sent me on the quantum of insurance. My understanding is that FCA authorised ​and regulated firms must have insurance in place; if they do not, the FCA has it in its armoury to de-authorise. I listened carefully to the hon. Gentleman, and his point seemed to be on the amount of that insurance. I am happy to take that matter away and consider it. On the practice of phoenixing, I am given to understand that the FCA has done a significant amount of work in that area. It launched a programme of work in April 2018 to strengthen authorisations, and I have given some of the details. I do not want to waffle further on this point, but I will give consideration to the amount and level of insurance required. The hon. Gentleman has discussed the matter with the FCA; I will do so as well and write to him. If it is not fit for purpose, it is not fit.