British Steel pensioners were targeted in a scandal “more serious” than PPI mis-selling, the chair of an influential group of MPs has said.
Many retirees were “shamelessly bamboozled” into transferring hundreds of thousands of pounds into risky products, netting advisers chunky payouts, the Work and Pensions Select Committee said.
Chair Frank Field is calling on the Financial Conduct Authority (FCA) to enact sweeping changes. These include a ban on contingency fees and the setting up of an adviser register.
The Pensions Regulator should also conduct a review into the way 2,600 pension transfers totalling £1.1bn were conducted, MPs demanded.
Average British Steel retirement savings were £400,000 per person, though in around 20 cases the transfer value was in excess of £1m. Adviser fees charged were as high as 10 per cent, the committee heard.
“[Previously] almost none of us understood what the nature of mis-selling could be about,” Field told City A.M..
This is more serious than [PPI mis-selling] before because we are supposed to learn from history.
As part of landmark pensions freedoms reforms, retirees are able to transfer chunks of final salary pots into other schemes.
An inquiry by the parliamentary committee found many British Steel pension members had been “exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called ‘introducers’”.
Hargreaves Lansdown head of policy Tom McPhail said: “It is extraordinary that even after the pension mis-selling scandal of the 1990s, the members of the British Steel scheme could be let down so badly.
“The scheme trustees and administrators should surely have taken more responsibility for protecting members interests and shielding them from unscrupulous advisers.”
He continued: “Contingent charging, where the adviser is actively incentivised to recommend a transfer, creates a glaring misalignment of interest between adviser and their client; it would be remarkable if it didn’t lead to at least some mis-selling.”
However, former pension minister Steve Webb urged authorities “not to throw the baby out with the bath water”.
“The obvious lesson is that you clamp down on the crooks and scammers, not that you clamp down on pension freedoms,” he said.
MPs concluded communication to British Steel pensioners over switching was “woefully inadequate”. The scheme’s trustee refuted the conclusion, saying it was “not supported by the evidence”.
“All members were provided with enough information to make good choices,” the trustee added.
The Pensions Regulator also rejected some MP inquiry’s conclusions. A spokesperson said it “helped tackle unscrupulous financial advisers who were exploiting the situation”.
“We went to Port Talbot and took part in a discussion forum with scheme members and others. We reviewed communications sent to members and were satisfied they adequately warned of the dangers of transferring out of a defined benefit scheme.”
An FCA spokesperson said: "We believe the committee’s recommendations are sensible. We are currently looking at the Register to see how we can make it easier to use. We are also reviewing the rules that apply to firms advising on pension transfers, and will consider this report as part of this."