I recently took part in two meetings with steelworkers on BSPS, this piece details what was discussed in those meetings. Steelworkers continue to be let down and its having a dreadful effect on them and their families. I and my colleague Nick Smith MP have been campaigning for justice and the campaign goes on.
The full article for those who can’t get behind the pay wall:
“Julian Price, 55, feels like he has lost out on a comfortable and worry-free retirement.
He transferred about £411,500 out of the “gold-plated” British Steel Pension Scheme in February 2018, paying £4,000 as an initial transfer fee. “The value of my pot fell to about £398,000 in little more than a week. Immediately alarm bells started ringing,” said Price, who is from Ebbw Vale.
He is among more than 7,800 workers who transferred a collective £2.8 billion out of the British Steel Pension Scheme, a final-salary (also known as a defined benefit) pension that would have paid them a guaranteed inflation-linked income for the rest of their lives.
Many steelworkers were advised to move their money into defined contribution pension schemes, where there is no guarantee and the amount you get in retirement depends on how much you save and how your investments perform. Transferring out of a final salary pension is rarely a good idea because it means that your pot is exposed to stock market risk.
Those workers who were wrongly advised can get compensation if transferring out led them to suffer a financial loss. How this is calculated, however, is causing problems for many workers. Six years on, Price is still fighting for compensation through a system he and others say is stacked against them.
Under a formula set by the Financial Conduct Authority (FCA), the City regulator, advice firms must work out whether savers will get the same income from their transferred-out pension than they would have received from the British Steel scheme, and they must base their numbers on current market conditions.
The formula assumes that at retirement the worker will buy an annuity — an insurance product that pays a guaranteed income for life. Because annuity rates are linked to the return on government bonds, they have risen sharply lately, meaning that you can buy a bigger income with a smaller pot. This means that the redress payments for steelworkers are falling.
“It feels like a lottery,” said Neil Morgan, 48. “People getting low compensation or nothing at all is adding stress and frustration. We feel as though we have been misled and it’s not our fault.”
The independent consultancy OAC looked at how the compensation a typical steelworker could expect to get has changed over time. It based its sums on a 50-year-old who transferred out of the scheme in December 2017 and assumed that they would have been paid £10,000 a year in retirement under the final salary scheme, rising in line with inflation. They compared this with what the transferred-out pot would have been worth if it had been invested in a fund tracking the FTSE UK Private Investor Income total return index of leading UK firms, and the annuity that pot could buy.
It said that in January 2021 the difference between the annuity value and what would have been paid out under the old scheme meant that they would have been entitled to compensation of £39,100. In January this year, however, they would have been entitled to nothing because the pot had more than enough to buy an income to match the final salary scheme.
Morgan started working in the Port Talbot steelworks when he was 20. He transferred about £290,000 out of the British Steel Pension Scheme in December 2017 to a defined contribution private scheme using the wealth management firm True Potential. His pot is now worth a little more than its transfer value six years ago. He has been waiting for compensation for almost two years.
“I thought the transfer was the right thing at the time, but I’ve realised that I was wrongly advised,” he said.
Morgan complained to the Financial Ombudsman Service in November 2021. The following August he was told that his complaint against True Potential was being upheld, but there was a delay while this verdict was confirmed and he must now wait for the firm to calculate what he is owed. “Two years is a crazy amount of time to be waiting. It seems like the time that the calculation is being done will now favour the company,” said Morgan.
His pension lost £103,000 between November 2021 and July 2022 while he waited for the Ombudsman, although it has since recovered.
The British Steel Pension Scheme
The scheme began in 1967 when the British steel industry was nationalised and was then taken over by Tata Steel in 2007. In 2016 the scheme had about 130,000 members and it was restructured after Tata Steel hit financial trouble in 2017. Members were given a 90-day deadline to decide whether to stay in the scheme, which was likely to fall into the Pension Protection Fund (PPF) — a government safety net that steps in to pay a pension if the company backing the scheme goes bust, but under which pensions can be reduced by 10 per cent — or move into British Steel Pension Scheme II, which would provide similar benefits but with lower annual increases. A third option was to transfer the money out altogether, which many steelworkers were told was their best option.
“The advisers were clambering over each other to get at our pensions,” said Des O’Brien, 58, from Port Talbot. “One adviser came to my home and told me I could get 12 per cent to 19 per cent returns a year if I transferred out. I smelt a rat.”
O’Brien transferred about £350,000 out of the scheme in December 2017 to a private pension through the advice firm Lowndes Halsden. He said that his transfer fee and other fees for the first year came to about £20,000.
“Lots of us started at the steelworks at the same time and our circumstances are almost identical. Some people get £85,000 compensation and some are getting £500. It’s a kick in the teeth,” said O’Brien. He was offered £7,600 in June 2021, but turned it down. “Since I transferred out, the money in my pension pot has gone up and down like a yoyo. It’s down about £20,000 this year.”
Compensation claims
The FCA wrote to steelworkers in 2021 saying that they could be entitled to compensation if they had been given poor advice. In June that year, Price asked his adviser, a freelancer who worked for the advice firm Beacon IFA, to send his transfer paperwork to check.
His adviser left him a voicemail, heard by The Sunday Times, urging him not to make a complaint. “From the information you have requested we are pretty sure that you have been approached to try and make some sort of complaint, but I just wanted you to know the implications that would have on myself, Beacon and potentially yourself if the complaint was to be upheld,” he said. “We never had a complaint against us. It is going to be pretty detrimental to the company even if your complaint is quashed — which we believe it will be — because obviously we gave you the correct advice for all the reasons you wanted to transfer.”
Beacon said that it was not aware of the phone call by a self-employed adviser but that it had since take appropriate action.
In August Beacon acknowledged that Price had been given unsuitable advice. It offered to pay about £56,000 compensation, but the money would have been placed in an escrow account, which he could not access until retirement, and could only be used to buy an annuity.
Price rejected the offer and in September 2021 complained to the Financial Ombudsman Service. It said that Beacon should work out how much it owed Price and offer a lump sum to cover his financial losses. In July 2022, Beacon said it owed Price £6,000 and offered to pay £300 for the stress caused by the poor advice. Price rejected the offer. When Beacon ran the numbers again in February, it offered him £1,000.
“The amount I was due has dropped from £56,000 to £6,000 to £1,000 in two years,” said Price. “I just want to draw a line in the sand and move on from this.”
Beacon said that although Price may be disappointed that his compensation amount was lower than hoped, this was because he had financially benefited from the transfer.
The FCA said: “The cost of buying a guaranteed lifetime income for retirement has fallen and is not expected to increase soon. As a result, those receiving redress today will get less as a lump sum than those who received redress last year. However, that lump sum should deliver the same retirement income.”
Price said: “However they calculate this, the fact is that I would have had a guaranteed income for life and now I don’t know what I will have from one day to the next.”
In Port Talbot this month, Al Rush, an independent financial adviser who has been helping steelworkers, and Stephen Kinnock, the MP for Aberavon, met steelworkers. “It does not seem legally or morally correct to award compensation on the basis of where the market sits at a particular moment,” Kinnock told a packed room.
He said that the behaviour of “unscrupulous advisers who ripped off the steelworkers was completely inexcusable”.
Rush said: “Thousands of steelworkers have gone from a bad advisory production line to a bad compensation production line.
This would have been avoided if, in 2017, the FCA had listened to campaigners and acted quickly and decisively to protect steelworkers.”
Kinnock said he would meet the Financial Regulators Complaints Commissioner, which deals with complaints about financial regulators.
The Financial Ombudsman Service said: “When we uphold a complaint, we’ll tell the business to put consumers back in the position they’d be in if things hadn’t gone wrong. We direct firms to apply redress calculations using the FCA’s methodology”.
Read the full article in The Times here:
Inside British Steel pensioners’ battle for compensation (thetimes.co.uk)