Justin Corliss, Senior Business Development Manager at Royal London, looks at the recent independent review of the British Steel Pension Scheme restructure.
In January 2019, Caroline Rookes, former CEO of the Money Advice Service, published an independent review of the communications and support provided to members of the British Steel Pension Scheme (BSPS) during the restructure and ‘time to choose’ exercise conducted in 2017.
This review, requested by The Pensions Regulator (TPR), wasn’t aimed at blaming the employer, trustees or other parties. Instead it aims to see if lessons can be learned from the BSPS experience, to try and improve the outcome for members of other schemes going through similar exercises in the future.
What were the key points in the report?
- The timeframe of the ‘time to choose’ exercise was tight, October 2017 to December 2017. This was driven by the need for the regulated apportionment arrangement (RAA) to take effect by 31 March 2018 to avoid unaffordable benefit increases needing to be paid. This would’ve jeopardised the affordability of the proposed BSPS2 the parent company was looking to create.
- Despite this 97,000 of the 122,000 BSPS members made an active choice, with 83,000 of them choosing to move to the new BSPS2.
- In a post-exercise survey, 96% of members who moved to BSPS2 and 86% of those who stayed with the original scheme and moved to the PPF, stated they would probably make the same decision again.
- Nearly 8,000 of the 44,000 deferred members with a statutory right to a transfer elected to do so.
- The increased workload this placed on the scheme administrators wasn’t identified early enough and rapidly became unmanageable.
- As the transfer option wasn’t part of ‘time to choose’, the communication to members wanting to explore transfer was insufficient, inconsistent and poorly delivered, with rumour and misinformation rife.
- The potential size of transfer values and a few advisers encouraging members to take the transfer and move to another scheme increased the demand for cash transfer values.
- Trustees directed members to Unbiased and the FCA register, which the report found weren’t unbiased or fit for purpose respectively.
What does the report recommend?
- TPR and FCA should consult to see if TPR should be given new powers to consider how prepared a scheme is to handle the member consultation exercise in the event of an RAA.
- TPR should consult with the DWP around legislation to simplify the choices in the event of a restructure.
- FCA, TPR, the new Single Financial Guidance Body (SFGB) and ultimately the Pension Protection Fund (PPF) should meet regularly to share information, and create guidance material for trustees and advisers facing similar exercises. The combined input of these parties at an early stage would likely improve the communications sent to members.
- TPR, with input from other public bodies, should produce sample communications material for trustees to use with scheme members, drawing on experience from SFGB.
- Trustee guidance should illustrate ‘what good looks like’ rather than outlining the minimum required to comply with regulations.
- Digital communications should be more readily used, rather than automatically using hard copy documentation as a default.
- For members who want transfer information, the trustees should work closely with public guidance bodies to offer them a route to guidance.
- Trustees could compile a list of suitable advisers and make this available to members.
- The FCA and SFGB should review their adviser directories/registers to ensure they’re fit for purpose.
In summary, the report found some improvement in the ‘time to choose’ exercise could be made with the proposals outlined. However findings suggest the process was broadly effective for the majority of participants. Greater issues were experienced by members who wanted to explore transferring, which was out of scope of the ‘time to choose’ exercise and could lead to poor member outcomes in future years.
Source: The Pensions Regulator, Independent review of communications and support given to British Steel Pension Scheme members, January 2019