By Mark Fairlie
Concern over pensions as steelworkers revealed to have been given misleading information regarding pension transfers by opportunist ‘wealth adviser’.
Steelworkers in the UK may have been “exploited” by financial advisers over their “final salary” pension schemes, leading to a backlash against the Financial Conduct Authority (FCA) from a variety of sources.
A number of financial adviser firms have also been accused of ‘factory-gating’ – baiting workers into meetings regarding the transferral of their pension with the incentive of ‘chicken and chips’.
Currently, many long-serving steelworkers are part of ‘final salary’ or ‘defined benefit’ pension schemes. With these schemes, both they and their employer pay into a pension pot over the duration of their service. The income is guaranteed but linked to inflation. The amount they receive at the end of their service is linked to their time spent with the employer and an aggregation of the wages they received in this time, hence the term ‘final salary’.
Last year, Tata Steel decided to keep operations at Port Talbot steelworks in south Wales running
but in doing so, forced 130,000 current and former steelworkers to make a difficult decision regarding the future of their pensions.
Workers were sent a letter in which an ultimatum was presented – either savers stick with the British Steel scheme, which is due to fall into the Pension Protection Fund (PPF), or they move to a new, private arrangement.
Situation similar to BHS collapse
This situation mirrors that of the British Home Stores collapse in April 2016 in which workers were forced to choose either the PPF or a new scheme which didn’t have an employer behind it. Financial advisors are warning that it is imperative now more than ever that savers fully understand the impact that transferring their pension could have. The issue has been highlighted again with the recent collapse of construction giant Carillion and uncertainty over their workers’ pension arrangements.
Current legislation requires that savers must take regulated financial advice before transferring a pension worth over £30,000. Transferring a ‘final salary’ pension can end up with the saver missing out on inflation-proofed income for life with their money susceptible to falling investment returns or even the possibility of it running out.
Opportunistic wealth advisers
“Opportunistic” wealth advisers are alleged to have seized upon the opportunity to capitalise on the confusion resulting from Tata’s announcement by touting attractive returns if workers transferred their pensions over.
Henry Tapper, founder of the Pension Playpen, in a blog post, claims to have uncovered bad practice across various financial adviser firms. Most notable is the elusive ‘Active Wealth Management’ (AWM) which failed to attend the committee the FCA called in order to address the accusations made against them.
AWM were ordered by the FCA to cease advising on new pension schemes after concerns came to light regarding the number of savers choosing to transfer their final salary plans.
Financial Conduct Authority accused of being too slow to respond
This is according to Frank Field, chair of the work and pensions select committee, who also accused the FCA of being “too slow” to respond to the situation. He said the order to cease advising came “14 months” after investigations into AWM were launched, and “just weeks before the original deadline for British Steel Pension Scheme members to make a decision on their pension.”
The current climate for pension transfers is a “perfect storm”, according to retired engineer Stefan Zaitschenko, 60, who helped set up a Facebook group for British Steel employees. He fears that victims are being put under pressure to transfer their money within a relatively short time-frame and that competition between local advisors for a relatively small number of possible pension transfers is causing advisors to promise more and more.
Henry Tapper, too, spoke to Port Talbot Steelworkers regarding the change. He was “concerned” over the seemingly low level of understanding regarding “cost and value,” and said there was concern about
“where the advice was coming from…Savers are unaware that even if they should secure a decent rate of transferral, ensuring that funds last long enough is a responsibility that falls on their own shoulders. “
Unclear how many workers signed up
It is not yet clear how much workers paid these advisers though the current figures lie between £1,400 and £1,500, which Field remarks “seem very small relative to the huge transfer values.” He adds that it is as yet unclear just how many workers may have unwittingly signed up to long-term adviser programmes and how much that will cost them in total.
The Financial Conduct Authority’s response has been firm and unwavering. A statement from the regulator reads:
“The Financial Conduct Agency wholly rejects the conclusion of the committee about our actions on BSPS. The FCA strongly believes that we have taken all the appropriate action we can within our remit on this issue.”