Government, Tata and regulators failed British Steel pension holders
Tata Steel announced a restructuring of the £14bn pension fund to keep the loss-making group alive. The restructuring offered members a number of options, including switching out of the fund. This saw them targeted by financial advisers and so-called ‘introducers’, who encouraged them to switch. For some members, this was a poor course of action that saw them miss out on a lifetime of guaranteed income.
The Work and Pensions Select Committee said this led to a “major mis-selling scandal” and the government, Tata and regulators failed to protect 124,000 members adequately.
The 39-page report urged the FCA to ban the use of ‘contingent charging’ – whereby financial advisers received a fee for transfer advice. It said it is “a key driver of poor advice” and added “genuine independence is not compatible with a charging model that only rewards advisers for recommending a particular course of action.” Advisers get paid if the member transfers their pension, but don’t receive anything if they don’t.
National financial planner LEBC welcomed the Work & Pensions Select Committee call for a ban on contingent charging. Kay Ingram, director of public policy at the group said: “We agree that contingent charging should be banned. It is not a practice which LEBC employs, as we believe it is important to maintain a neutral approach when advising on pension transfers. We charge a fixed fee for advice, regardless of the outcome of that advice. Those who charge contingent fees will inevitably have a bias towards recommending a transfer.
“For many defined benefit pension scheme members, staying in the scheme for the majority of their working life and retaining the promise of a guaranteed retirement income is the right thing to do. It is only when retirement is near term and there are special personal circumstances that may make a transfer beneficial to the member or their family, that individuals should consider whether a transfer will be in their interests. We understand the argument used by some, who charge contingent fees, that not everyone has the funds available to pay for advice out of their own pocket. We do not agree that this justifies contingent charging.”
The group believe that the key to making advice more affordable is via workplace education, enabling scheme members to understand their options before seeking individual advice, but also to encourage employers to make employer sponsored advice available to staff- tax free up to £500 per person per year. Using a combination of technology and human interaction – so-called “bionic “advice – should also help address the problem.