FCA expects to consult on consumer redress scheme for BSPS members

The Financial Conduct Authority expects to launch a consultation on a consumer redress scheme for members of the British Steel Pension Scheme by the end of March 2022, subject to final approval from its board¹. The regulator began assessing the suitability of a consumer redress scheme in April 2021¹.

The BSPS was a large defined benefit scheme sponsored by Tata Steel UK. In 2015-16 it had approximately 130,000 members, including 14,000 current employees, mostly located in Wales, the Midlands, Yorkshire and the Humber region, and North-East England, and £13.3 billion of assets¹. After Tata Steel experienced financial difficulty, the scheme was restructured in 2017¹. Around this time, 7,834 members, representing £2.8 billion of the fund, chose to transfer their benefits out of the scheme to a defined contribution arrangement; 95% of these decisions were informed by independent financial advisers¹. The average transfer value was £365,000, with some worth more than £1 million¹. Subsequently, there have been concerns that these members received unsuitable advice and may have made poor financial choices and lost significant sums of money as a result¹.

The National Audit Office investigation sets out the FCA's regulatory activity in the case. The FCA opened enforcement investigations into eight firms that provided advice to BSPS members, and has 30 BSPS enforcement investigations ongoing¹. In May 2020, the FCA decided that 45 firms that it considered may have given unsuitable advice should conduct suitability assessments, called Past Business Reviews¹. The FCA banned charges for advice where consumers only pay when a transfer proceeds, and published a Defined Benefit Advice Assessment Tool in January 2021 to assist its review of DB transfer advice cases¹. It also helped to enable the scheme's trustees to issue a letter to 12,000 BSPS members asking them to consider a transfer carefully, and sent a letter to all advice firms setting out its expectations on pension advice¹.

The NAO report also sets out the wider timeline. HM Treasury consulted on pension reforms in March 2014 and introduced new legislation to Parliament in June 2014, which took effect from April 2015¹. In May 2016, the Department for Work & Pensions launched a public consultation on options for helping the BSPS as part of a wider package of government support¹. The 'Time to Choose' exercise asked BSPS members to decide whether to move their pension benefits to a newly created successor scheme or to leave them in the BSPS, with a deadline of 22 December¹. The BSPS entered the Pension Protection Fund assessment period on 29 March¹.

Why it matters for households

The consultation concerns members of the British Steel Pension Scheme who transferred out after receiving advice, and the possibility of a scheme to award redress across the group rather than case by case. Almost 8,000 steelworkers chose to transfer out of the scheme after receiving advice from their financial advisers, and there have been concerns that this advice was unsuitable, with these pension members losing significant sums of money as a result¹. Financial advisers are regulated by the FCA, while the Financial Ombudsman Service and the Financial Services Compensation Scheme award redress to consumers that have been treated unfairly¹. A consumer redress scheme would set the terms on which compensation is assessed and paid for affected members, rather than leaving each to pursue a complaint individually. The FCA has not yet published the scope, eligibility dates or calculation method; those would be set out in the consultation itself, which has not been published.

What happens next

The FCA expects to launch the consultation by the end of March 2022, subject to final approval from its board¹. The NAO report was published on 18 March 2022¹. No date for the outcome of the consultation, or for any scheme taking effect, has been reported.