The UK parliament’s spending watchdog is being urged to investigate the financial sector regulator over its handling of a multibillion pound pension mis-selling scandal which victims claim has left “cowboy advisers . . . laughing in their villas”.
Labour MPs Nick Smith and Stephen Kinnock said the Financial Conduct Authority had failed to get to grips with a scandal which erupted in 2017 after media reports that financial advisers, incentivised by commissions and high fees, were descending on Tata Steel plants — particularly the site at Port Talbot in south Wales — and enticing workers to cash in valuable pension benefits.
“Our experience of the FCA in relation to the scandal has been one of delay and failure to lead,” said Smith, MP for Blaenau Gwent and a member of the House of Commons public accounts committee.
“It is estimated that thousands of steelworkers were given bad transfer advice and lost tens of thousands of pounds as a result. The National Audit Office needs to investigate how this has been handled.”
The mis-selling went far wider than steelworkers. Data from the regulator shows that between April 2015 and September 2018 some 235,000 final salary style pension scheme members from various industries, with an average transfer value of £352,000, received transfer advice.
About 69 per cent of these people were advised to transfer but in 2018 the FCA found after reviewing 18 firms who had advised on 48,000 cases that only 48 per cent of the recommendations were suitable. It is advising affected people to seek compensation.
Experts warn this could be the biggest pension mis-selling scandal in decades.
Among the south Wales steel workers where the mis-selling reports emerged, anger is rising at how they were persuaded to transfer out of their defined benefit pension and with the FCA’s response.
“The cowboy advisers are laughing in their villas while we are having sleepless nights,” said David Neilly, a former member of the British Steel Pension Scheme who attended an event organised by the FCA in Swansea last week for former BSPS members wishing to complain and seek compensation. “The FCA has done too little too late.”
The FCA expects advisers to start from the position that it is not in the best interests of most people to give up defined benefit pensions, which delivers a secure inflation-proofed income with a survivor’s pension.
But between 2017 and 2018, around 7,700 members of the BSPS transferred their secure benefits to stock market-based pension arrangements after receiving recommendations from FCA-authorised advisers.
The total value transferred was about £2.8bn with an average pot size of £350,000. However, in June 2020 the FCA said a review had found that only a fifth of the recommendations to BSPS members to transfer were suitable.
So far only around 1,200 complaints relating to BSPS transfers have been lodged with either the Financial Ombudsman Service, which can award compensation for losses incurred over unsuitable transfers of up to £160,000, or the Financial Services Compensation Scheme. This settles complaints when a firm or adviser has gone bust but can only pay out a maximum of £85,000.
Steelworkers attending the FCA event in Swansea said they were bewildered about the complaints process.
“I haven’t got a clue what today is about,” said one 56-year-old steelworker attending the event, who was advised to transfer a £290,000 secure pension into a risky stock market-based plan in 2017. “I just followed my mates who were getting transfer advice.”
“I’ve known my adviser for 20 years and he’s done all my mortgages and did my transfer,” said another steelworker who attended and also wished to remain anonymous. “I don’t know whether the advice I got was right or not.”
After a 30-minute session with a FOS representative, the man was recommended to lodge a complaint with his financial adviser, which he said the FOS would do on his behalf.
Other steelworkers who attended the event were angry they had not been encouraged to make complaints sooner, before the advisers went into liquidation, when the potential compensation was greater.
The firm that advised Neilly was one of 13 that had provided transfer advice to BSPS members and had subsequently gone bust. “People are going to be left thousands of pounds worse off because they didn’t know to get their complaints in sooner,” said Neilly
The FSCS has so far settled 482 claims totalling around £21m for BSPS members, with an average payout of around £43,000. Another 153 claims are being processed.
However, some people were angry at how their claims had been assessed.
Reg Bennett, 58, a former BSPS member, said he was not awarded any compensation by the FSCS even though he was classified as having been given unsuitable transfer advice in 2017. “I am having sleepless nights over this,” said Bennett. “The FSCS calculation terms are not set out clearly and this is unfair.”
Steelworker Craig Williams, of Port Talbot, said the FSCS had penalised him for not having a financial adviser when he lodged his claim. He said it had not been made clear to him by the FSCS that this could cost him thousands of pounds in compensation.
“I had no clue how it would affect me,” he said. “This is so stressful.”
Some BSPS members were perplexed over a seeming lack of action by the regulator against firms facing large volumes of successful mis-selling complaints.
“The guy who gave me the bad advice is still trading,” said one steelworker who attended the FCA event but wished to remain anonymous. “He’s driving around town in a [luxury car].”
He said he was now worried that his retirement pot, which is invested in the stock market and attracting annual fees of 1.9 per cent, will not last. “I feel robbed not just of my pension but my future,” he said.
Kinnock, the MP for Aberavon — which includes Port Talbot, and Smith called on the FCA to launch an industry-wide redress scheme for BSPS members. “It’s time to draw a line under the scandal,” Kinnock said.
This call was supported by Mick McAteer, a former board member of the FCA and its predecessor, the Financial Services Authority, who is now co-director of The Financial Inclusion Centre, a UK not-for-profit policy and research group.
“This has the potential to be one of the worst mis-selling scandals of recent times,” he said. “The regulator is duty bound to take ownership of the process and ensure anybody who has been adversely affected gets proper redress.”
Sheldon Mills, executive director for consumers and competition at the FCA, who attended the event in Swansea, said a decision would be made on a BSPS redress scheme in the next six months. He added the FCA would launch more one-to-one events for steelworkers in other areas, given the Swansea event was oversubscribed.
“We are committed to helping steelworkers to go through the complaints process,” he said. “It is important that this is where we focus our efforts.”
The FSCS rejected the notion that claimants with advisers would receive “extra compensation”. It said that a customer’s compensation “reflects the customer’s position at the point in time at which the claim was assessed”.
The National Audit Office, the spending watchdog, said it was “at the preliminary stages of considering a potential study into the regulation of financial services with a focus on consumer protection”.
“Our comptroller and auditor general has not yet decided whether we will go ahead,” it added.
Additional reporting by Laura Noonan