Proposals for a £71.2 million compensation scheme for 1,400 British Steel workers have been outlined by the city regulator today.
The Financial Conduct Authority (FCA) had published plans for a compensation scheme for former members of the British Steel Pension Scheme (BSPS) who received unsuitable advice to transfer out of the fund into higher-risk schemes.
Financial advisers received hefty fees after wrongly persuading workers at the Port Talbot steelworks in south Wales between May 2016 and March 2018. About 46 per cent of the advice relating to BSPS was unsuitable according to an FCA review.
The authority said it would take strong action against firms that tried to avoid their responsibilities to pay compensation. The regulator has frozen the assets of one firm and is investigating 30 individuals or businesses related to BSPS.
Advisers have been able to avoid paying compensation by shutting down their businesses. Claimants are left to seek redress from the Financial Services Compensation Scheme, the industry-funded safety net for savers, the cost of which has surged in recent years.
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The scheme has received about 1,300 claims and paid £37.3 million in compensation relating to the BSPS. About £15 million has also been paid to former BSPS members after the FCA ordered firms to review their previous business.
Rules about how financial advisers are paid for providing pension transfer advice changed in 2020 so advisers are not incentivised to recommend a transfer out of a defined benefit scheme.
If the compensation plan goes ahead the FCA will publish rules setting out how advisers must determine whether they gave unsuitable advice and whether they must pay compensation. The scheme is expected to be in place by early next year and consumers would start to receive compensation from later in the year.
Sheldon Mills, executive director for consumers and competition at the FCA, said: “The circumstances around British Steel Pension Scheme transfers were exceptional, with former members receiving significantly higher levels of unsuitable advice compared with other cases. We want individuals who lost out financially after receiving unsuitable advice to receive compensation through our scheme.”
This is the second time the FCA has used its powers to create a compensation scheme. The first related to consumers who were given unsuitable advice to invest in the Arch Cru fund in about 2012. This scheme is expected to pay out about £31 million.
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Tom Selby, at the investment firm AJ Bell, said: “Aside from the direct impact on members who were badly advised, the scandal will also inevitably harm trust in retirement saving more generally. The wider pensions industry will now need to redouble efforts to ensure people aren’t put off saving for retirement altogether.”
