At least 7,700 former British Steel Pension Scheme members were advised to transfer out of their DB pension and, according to FCA’s own suitability review, nearly half of them did so on unsuitable advice.

In the four years that have passed since those revelations came to light, we’ve been continually reminded that the advice industry is a fundamentally human one – with real people’s lives and future financial security impacted by the suitability of the advice they receive.

As a result, the industry is now grappling with an influx of complaints and redress claims from former members who have lost out on tens of thousands in retirement income. And as the FCA announced earlier this year that it will review the advice of the 254 firms involved, it’s clear the impact of the scandal will reach far and wide.

Are there any risks lurking in your back book? If you haven’t already, now’s the time to check and start putting the necessary provisions aside.

TCC is one of the largest reviewers of DB files in the market, so I’ve seen a far few of these cases come across my desk. While many of these files demonstrate sound advice, there’s a couple of common issues that should be prompting you to investigate further. Here’s my top ones.

Lack of consideration of alternatives

There were a number of external pressures facing the former BSPS members who chose to transfer. Namely:

  • Lack of guidance and information from Trustees: news that the scheme was in trouble broke in 2016, but it wasn’t until late 2017 that Tata Steel implemented the Time to Choose consultation. In the meantime, members and their advisers had little information on what their future options were. The choice was between transferring out, transferring to the new scheme – the details of which were yet to be confirmed – or falling into the Pension Protection Fund (PPF), a move that had already been branded a ‘poor outcome’ by trustees.
  • Time pressure: many of the steelworkers were facing redundancies. On top of that, a short consultation period meant many had just a few months to decide whether to transfer. They were undoubtedly feeling that additional pressure to secure their financial future.

Consequently, it’s common to see transfer recommendations justified by client objectives that are based on assumptions. For example, avoiding the PPF or flexibility of death benefits. These objectives aren’t inherently problematic, but there are other ways of meeting those needs without putting the client’s pension at risk. In most cases, alternative options weren’t sufficiently tested.

Lack of supporting evidence

One issue that plagues the wider Defined Benefit transfer market, and is a particular problem in British Steel cases, is transfer recommendations that aren’t properly justified.

We all know clients can be easily convinced by attractive transfer values, particularly when facing uncertainty over their future. It’s down to advisers to put that figure in perspective, weigh it up against the benefits they’d be giving up and consider whether it is, in fact, in the client’s best interest to transfer.

At best, the absence of this can be put down to deficient files with missing information, or ‘Material Information Gaps’. Perhaps the adviser had collected the right information and determined that a transfer is the best way to go – it just isn’t evidenced in the file. In the worst cases, we see some transfers into expensive SIPP’s without any justification as to why this is more appropriate than alternative lower-cost funds. Likewise, a transfer may have gone ahead without having access to, or considering, the details of BSPS2 and the PPF.

Whatever the root cause, files with information gaps and a lack of evidence need to be investigated.

If you suspect these risks exist in your business, our team of experienced file reviewers and redress experts are here to support you. Here’s how we can help.

  • High quality file reviews: We’ve conducted Defined Benefit file reviews, including British Steel transfers, on behalf of over 30 different firms and know exactly what standards the FCA expects.
  • Fast and flexible calculations: our highly skilled redress team can deliver provision calculation or accurate full redress calculations, scaling operations up or down depending on your needs.
  • Support with S166 skilled person reviews: when there’s a lot at stake, you only want the best. We’re listed on the FCA’s Skilled Personal Panel for Conduct of Business and can help you demystify what’s required from a Section 166.

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