Trustees should have done more to signpost British Steel members to good IFAs, advisers argue, as the fallout from the pension scheme’s collapse continues.
Attention is being turned to trustees as commentators fear the website and helpline set up to inform members of their options has been inadequate.
Amid more reports of unscrupulous introducers trying to cash in, what can the tale of the British Steel Pension Scheme tell us about the role trustees and adminstrators can play to work with advisers to stop bad transfers?
Working to deadline
During a work and pensions select committee hearing on 13 December BSPS trustee chairman Allan Johnston admitted the amount of interest members expressed in transfers took him by surprise.
He said: “We have had 12,200 people apply for a transfer-out quotation. Dealing with that massive upsurge has been almost impossible. You cannot just hire in staff to do this because it is very detailed and it has to be done correctly. To put it into perspective, there are 18 people in the administration office.”
MPs also learned somebody called the BSPS office 207 times for additional information and when they did get through, the helpline did not have the right information.
While the website and helpline were initially set up to answer questions about the original scheme BSPS 1, heading into the Pension Protection Fund and the new scheme BSPS 2, there was no dedicated support for transfers.
When Money Marketing contacted the trustees about whether more could have been done to help members with queries about transfers a BSPS spokesperson says: “Despite the higher than expected interest in transfer activity and the significant additional workload arising from the Time to Choose exercise, the Trustee has been able to generate cash equivalent transfer value quotes and to process transfer requests in accordance with statutory timelines, and fully expects to continue doing so.”
There are commentators like Lyncombe Consultancy managing director Malcolm Small who are sympathetic to the trustees.
He says: “I don’t want to criticise trustees as people have to personally engage with pensions and this something we will see across all industries. It is good steelworkers are doing it in this case and so I see it as positive.”
For Small the story of BSPS is far bigger than what trustees did or did not do in terms of providing support for transfers.
He says: “The elephant in the room is the sustainability of defined benefit schemes in the private sector. DB is great when most people work in one place for most of their working lives and men did not make it to retirement but this has changed.”
Holes in the net
Others argue trustees could have done more to help members and these include First Actuarial business development director Henry Tapper, IFA Al Rush – who have been instrumental in setting up pro-bono operation CHIVE to support steelworkers – and Hymans Robertson head of workplace savings Chris Noon.
Each suggest a different solution the trustees could have implemented which they believe would have put members in a better position than the one they are in.
Tapper says: “A group of IFAs could have been selected to help steelworkers. Instead the members have been left to themselves and have been using Facebook to help one another answer retirement queries.”
Another option that could have been used is the the pensions advice allowance according to Rush.
This was introduced on 6 April 2017 to allow consumers to access up to £1,500 early from their pension pots to pay for advice. Consumers can access £500 a time in three separate tax years, which can be put towards robo or face-to-face retirement advice..
Rush explains how it could have worked at BSPS: “The £500 one-off contribution could have used to provide proper advice for scheme members. This could have been used to fund communal sessions where members could learn about pensions from The Pensions Advisory Service and other advisers.”
A final solution proposed by Noon involves injecting some experience from the institutional world into the retail one.
In April last year Hymans Robertson produced a case study of one of its clients, the Essar Oil (UK) Pension Scheme. The scheme selected an online platform, LV= Pension Compass, to help educate members about pensions and access financial advice.
31 March 2017: BSPS closes to future accrual
11 August 2017: Trustees announce agreed terms for a deal to separate BSPS from Tata Steel
11 September 2017: The Pensions Regulator approves deal to split scheme from Tata Steel UK. BSPS receives £550m from Tata Steel together with a 33% per centequity stake in Tata Steel UK
4 October 2017: Individual information packs start being sent out to members. 125,000 are eventually sent
6 December 2017: BSPS extends guarantee period for transfer quotations until 26 January
13 December 2017: At a hearing of MPs, BSPS trustee chairman Allan Johnston says he has personally signed off 20 transfers of pension pots worth more than £1m
22 December 2017: Deadline for members to choose what happens to their pension expires
26 January 2018: Final deadline for transfer quotations expires
Noon thinks a solution along these lines could have been applied at BSPS.
He explains: “If I was a trustee and was worried about members making a poor decision I would appoint someone like LV= to help them understand their decisions and where to go. We know LV= is regulated by the FCA and does join up the advice process. I am surprised the trustee at British Steel did not appoint this solution.
“If we can borrow some of that institutional thinking and get IFAs to speak to people then all those things which are being raised now in DB to defined contribution transfers would not be there.”
A LV= spokesperson says: “Employers and trustees have a significant role to play in ensuring pension scheme members are making informed choices and, where appropriate, can easily access affordable advice.
“Some DB schemes will make a financial advice facility available to every member who is considering a transfer and this may be partly or wholly funded by the scheme.
“This is a good solution, with clear benefits, provided there is proper due diligence on that adviser, the fees are competitive, and members are made aware they are free to choose another adviser if they wish.”
The current high level of enquiries for CETVs is making the administrators provide us with more information to perform a full transfer analysis. Imagine the frustration on receiving varying levels of information from different schemes which leave statements open to interpretation. Take, for example, a national provider quoting a deferred pension amount from age 60. It then proceeds to give two guaranteed minimum pension figures ‘included in above’. Whether that is the two together, or one minus the other to work out an excess, requires a phone call or email, and an official answer, in writing, could take 20 days due to the current high demand. In the meantime, we have a three-month deadline to advise the client.
Trustees have a duty to act in their member’s best interest. They need to highlight the value of seeking independent financial advice and provide advisers with a standardised set of answers to the usual questions around scheme benefits. If the answers are uniform it saves time and we can advise many more. Schemes that are ‘encouraging’ members to transfer away tend to give the necessary information and be very helpful in responding despite the high enquiries. Again, that raises suspicions for the wrong reasons. Trustees should make it easier for both the member to seek advice and for the adviser to receive the necessary information.
For a potential defined benefit transfer I insist on at least four meetings with the client, running through various scenarios to ascertain whether they really know what is involved, to give up a guaranteed income in return for access to a higher tax-free lump sum, legacy through death benefits or current high transfer values.
Each scenario raises highly personal responses. People give considerate responses and value the pros and cons of all scenarios once they are clearly explained. It is also clear that many are suited to partial transfers because they need access to a lump sum and seek comfort in knowing there will be a guaranteed income later. At present, annuities are inferior to the scheme benefits.
Kusal Ariyawansa is a chartered financial planner at Appleton Gerrard