So, British Steel has been placed in compulsory liquidation, following the breakdown of talks between its owner and the government. It only seems a short while ago we were dealing with the last crisis for the company’s beleaguered pension scheme members. Back in 2017, they were given inadequate help as they tackled the decision about whether to move their savings to the new British Steel Pension Fund, take benefits via the Pension Protection Fund or transfer to a defined contribution scheme. As we know, this was a complete disaster that resulted in many wrong decisions occurring.
Workers who did transfer to the new scheme will now be asking themselves if they made the right choice, which will inevitably lead to a further rush to look at getting out before the pot is compromised again.
The big questions this time around are whether or not British Steel’s workers will have access to sound financial advice before acting, and if the regulator can accept mistrust as a factor in a decision to transfer.
Many firms are reluctant these days to take on large numbers of defined benefit transfer cases, so choice is limited for anyone wanting advice.
The Personal Finance Society has tried to make it easier for people to get reliable advice with the introduction of the new Pension Transfer Gold Standard. Its principles are all about making sure the scheme member understands the advice process, and setting out guidelines for best practice. The challenge, however, will be to communicate the message to those who need DB transfer advice and to ensure they go to firms holding the new standard. Education will be key.
But there is another big drawback for those who might want to consider a DB transfer now: the sky-high transfer rates of a couple of years ago have long gone. The dilemma will be whether to stay where the benefits are potentially higher but might be at risk if the company collapses, or to move benefits into a DC scheme and compromise their value.
British Steel is not the only large business in the UK that is struggling in the current financial environment.
We may yet see more DB scheme sponsors finding it difficult to continue trading and more groups of workers with their pension entitlements at risk.
If the current economic climate continues, we might see a new wave of DB scheme members wanting to explore the possibility of transferring.
Mistrust of the safety of their entitlements may be the driver, and this puts them in a position that is inevitably vulnerable.
As advisers, we are stuck between a rock and a hard place again, where we’re damned if we do and damned if we don’t provide DB transfer advice.
Yes, we’ll be able to charge fees on all those new potential cases, but the risks of that advice coming back to bite us in the future remains very real.
How can we allow for the potential risk of the collapse of a scheme sponsor in our advice processes? How do we measure mistrust?
Should we be comparing benefits between those available from the PPF if the scheme is inadequately funded and those from a DC scheme, rather than the actual scheme benefits?
I don’t have an answer to this latest dilemma, but I do think that as a profession, we need to talk about it.
Carl Lamb is managing director of Almary Green