“Vulture” FAs preyed on British Steel workers in pension raid, MPs claim

British Steel Pension Scheme members were targeted by “vulture” financial advisers who “shamelessly bamboozled” them after Indian firm Tata was allowed to offload the retirement fund as part of its rescue of the business last year, MPs have said.

In 2017 Tata announced a restructuring of the £14 billion fund to keep its UK loss-making operations afloat.

A new report from the Work and Pensions Select Committee assessing the closure of the British BSPS found regulators had accepted that Tata Steel UK would be insolvent if it had continued to sponsor the scheme.

However, it has also found that the government, Tata and regulators failed to protect 124,000 members from a “major mis-selling scandal”.

The Work and Pensions Committee said it had received worrying evidence about financial advice provided to members of the BSPS, saying BSPS members had, over the past year, “been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called ‘introducers’”.

A spokesman for the steel unions, including Community, said: “There is clear evidence from this report that some steelworkers were exploited and given poor advice on hugely important choices.

“Regulators need to toughen up when it comes to shutting down irresponsible financial advisers, and warning people about which firms to avoid.”

He said they would continue to support members who believe they have been ripped off “and will keep lobbying government and regulators to ensure measures are put in place so that such a scandal can never again be allowed to happen.”

The Work and Pensions Select Committee report found that steelworkers yet to reach pension age were encouraged to transfer their defined benefit pension rights into a defined contribution pension, known as making a DB transfer.

DB transfers may offer people readier access to cash and can be in the interests of people with a low life expectancy.

But transferring away from a DB pension or a “final salary” scheme is not usually in someone’s interests, the committee said - as it means giving up generous and stable benefits in favour of a riskier investment.

The report said: “The circumstances surrounding the BSPS created perfect conditions for vultures to take advantage.”

Unsuitable advice on DB transfers is not only confined to BSPS members, the report warned.

It continued: “Research by the Financial Conduct Authority (FCA), which regulates advisers, shows that only half of such advice nationwide meets its standards.

“Yet over 100,000 people a year are taking DB transfers on the back of this advice.”

The report said: “Another major mis-selling scandal is already erupting and we therefore call on the relevant bodies to treat this as such and take urgent action.”

The report said the outlines of a deal to save the sponsoring employer of the BSPS, Tata Steel UK, had been in place since May.

Members were asked to choose between two pension schemes which offered inferior benefits to the BSPS - the Pension Protection Fund (PPF) or a new scheme, BSPS2, it said.

But many scheme members had lost trust and a member communication plan proved “woefully inadequate”.

The Pensions Regulator was responsible for ensuring members were not left in the dark.

But the report continued: “All this failed. Instead, faced with making a life-changing choice in a hurry, many members were attracted to a third option of a DB transfer.

“This was seemingly unforeseen by all those bodies with a duty to watch and act.”

The report said many BSPS members were “shamelessly bamboozled” into signing up to ongoing adviser fees and unsuitable funds with high investment risks, high management charges and punitive exit fees.

Since March 2017, the scheme has processed 2,600 pension transfers equating to a total value of £1.1 billion, according to data revealed on February 8 by the scheme trustees.

The average value of BSPS pension benefits transferred out was £400,000. In around 20 cases the transfer value exceeded £1 million.

The committee heard of advice fees typically around 2 per cent of the transfer value and “punitive” exit penalties ranging from 5 per cent to as high as 10 per cent.

Among its recommendations, the committee said the Pensions Regulator should conduct a review to learn lessons.

An online register of advisers and their current status should also be created by the FCA, it said.

Frank Field, chairman of the committee, said: “Once again we find the Pensions Regulator fiddling while Rome burns, when it should have seen this rip-off coming.”

He continued: “All the responsible authorities must act, now, to stop more people being cheated.”

The UK government has yet to issue its response to the “neglect” claim made in the Work and Pensions Select Committee report.

The Pensions Regulator said it had fulfilled its primary role by evaluating and approving this complex restructuring of the scheme.

“We believe this was the best possible outcome for everyone involved in what was a very challenging situation, bringing greater certainty for thousands of scheme members,” said a spokesman.

“We also helped tackle unscrupulous financial advisers who were exploiting the situation and the current high transfer values available by working closely with the scheme trustees, the FCA and The Pensions Advisory Service (TPAS).”

Tata Steel said the consultation process was a major undertaking involving “complex financial detail”.

A spokesman said it was pleased so many pension scheme members made a positive choice to select the best scheme for their future.

“We were also pleased to note the trustee expects the new scheme to pass the agreed qualifying conditions to go forward,” he said.