NAO publishes investigation into BSPS pension transfer advice and redress

The National Audit Office (NAO) published its value for money investigation into the British Steel Pension Scheme (BSPS) on 18 March 2022¹. The BSPS was a large defined benefit (DB) scheme sponsored by Tata Steel UK, restructured in 2017 after Tata Steel experienced financial difficulty¹. Around that time, 7,834 members chose to transfer their benefits out of the scheme, and 95% of those decisions were informed by independent financial advisers¹.

The NAO found that the regulated advice market failed to protect members adequately, with 47% of advice deemed unsuitable¹. It said the total loss experienced by members is not recorded, but that for claims made to the Financial Services Compensation Scheme (FSCS) the average individual loss is £82,600¹. The report states that the communication and support provided at the time of the restructure was not adequate¹.

The investigation covers how DB pension transfer advisers were regulated in the BSPS case and the extent to which compensation has been delivered¹. It sets out the roles of the Financial Conduct Authority (FCA), which regulates over 50,000 financial services firms and supervises financial advisers; the Financial Ombudsman Service, which resolves complaints between financial services providers and their consumers; and the FSCS, which pays compensation where a firm is unable to pay claims because it is no longer in business¹.

The NAO said the FCA has put in place measures aimed at improving regulation of the pensions advice market, such as a ban on charges where advisers are paid only if a transfer proceeds¹. It added that the redress arrangements have not compensated all individuals fully, that the costs of redress have affected the wider financial services industry, and that the number of firms providing DB pensions transfer advice has more than halved¹. Despite high levels of unsuitable advice, only a small proportion of members have made a complaint through the statutory redress organisations¹.

Why it matters for households

The report concerns the 7,834 members who transferred out of the BSPS around the 2017 restructure, 95% of whom took advice before doing so¹. For those who have claimed through the FSCS, the average individual loss recorded is £82,600¹. The NAO states that only a small proportion of affected members have complained through the statutory redress organisations, which are the Financial Ombudsman Service and the FSCS¹. The report does not set out individual eligibility, time limits or how any particular complaint would be decided; those depend on the scheme and firm involved. The NAO also records that the number of firms providing DB pensions transfer advice has more than halved, which affects the supply of advice available to members of other DB schemes considering a transfer¹.

What happens next

The NAO set out matters for consideration rather than recommendations¹. It said the FCA and HM Treasury should consider whether there are lessons to be learned about how they work together to identify and mitigate risks to consumers as policy is developed¹. It said regulators and oversight bodies with responsibilities for protecting pension scheme members should consider what further changes can be made to minimise the risks associated with transferring out of a scheme, including the strength of existing safeguards, the regulatory data needed to support proactive intervention and the powers to collect it, and how to communicate key messages with less accessible firms and consumers¹. It also said the FCA, the Financial Ombudsman and FSCS should reflect on their experiences in trying to reach affected consumers, and that this analysis should feed into how they operate the new joint working framework¹. No dates for those steps are given in the report¹.