We all remember the BHS scandal. I can still see Sir Philip Green being dragged before MPs to be quizzed about how he sold the department store for £1 to a former bankrupt. We all gawked at the pictures of the billionaire sunbathing on his yacht while BHS workers lost their jobs and fretted that their pensions would be next.
Very few remember what happened at exactly the same time in Port Talbot to the steelworkers in the British Steel pension fund. Their company was on the brink, their pension almost lost too.
There were 19,000 people in the BHS pension scheme; there are 125,000 in British Steel. The BHS scandal has been settled, the British Steel one rumbles on to this day and affects every one of us.
I first sent a reporter to Port Talbot in 2017 after a tip-off from a financial adviser who said that something was going wrong with British Steel Pension Scheme. Workers were transferring their final-salary pensions out of the scheme in their thousands. At the rugby club there were posters advertising free financial advice sessions. Down the pub, all anyone could talk about was the vast sums of money steelworkers could get their hands on. Everyone could recommend a financial adviser too.
It is rarely a good idea to cash in a final-salary pension. Not only are they generous but getting rid of them means swapping certainty and safety for volatility and insecurity.
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It is easy to characterise the steelworkers as greedy, and many do acknowledge that they were blinded by the sums of money being offered, but they were mainly the victims of a system that let them down. Financial regulators, government ministers, unions and the pension scheme trustees were supposed to look after their interests but they were underprepared and overwhelmed.
The steelworkers were not duped by scammers, but misled (mostly) by fully regulated and approved financial advisers who got a payday only if the steelworker transferred out.
Hundreds upon hundreds of millions of pounds flowed out of British Steel and into funds run by leading insurance companies. Alarm bells should have rung there, but not one of them uttered a word. They are likely to be making £14 million a year from this money.
When regulators did act, they left the steelworkers to make a complaint on their own. Many still do not realise how much money they have lost. Some have managed to claim redress from the Financial Services Compensation Scheme. The £406 million bill for this is funded by other financial advice firms — essentially the good ones paying for the bad. This cost is passed on to anyone who uses a financial adviser. On top of this, professional indemnity insurers are now wary of offering cover to any financial adviser who does final-salary pension transfers, trebling the cost. Again this is passed on to consumers.
All of this explains why it is suddenly so eye-wateringly expensive to get advice about transferring your pension. And none of it will improve until the mess of British Steel is finally cleared up
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Unfortunately the Financial Conduct Authority (FCA), the City regulator, is moving at its usual snail’s pace. In 2020, 45 companies were asked to review the advice they had given and pay redress. Almost two years later only two have finished this work, paying out more than £12 million. Of the 45, 17 decided that the cost of doing a review would be too great and simply went bust, leaving everyone else to pick up the tab.
With other widespread mis-selling scandals such as Arch Cru and London Capital and Finance, there have been government or City watchdog-approved compensation schemes. For the steelworkers there has been nothing.
The FCA must now get on with approving a compensation scheme, funding it with a levy on the wider pension industry, which has neatly managed to benefit from this scandal while shirking all responsibility for it.
But no compensation will replace the security the steelworkers have lost, or the faith that has been destroyed in the system that was meant to protect them.
