First Actuarial director and British Steel campaigner Henry Tapper has criticised the role of unregulated introducers in encouraging unsuitable defined benefit transfers out of the scheme.
Tapper has been heavily involved with Operation Chive, the pro-bono adviser-led initiative to give help and guidance to steelworkers after the British Steel Pension Scheme’s collapse left them vulnerable to transferring against their best interests.
Speaking at Money Marketing‘s Retirement Summit last week, Tapper noted that while a number of regulated advisers had stopped trading due to unsuitable transfers, lead generators played a key role in funnelling clients to transfer specialists in exchange for a marketing fee.
Tapper said: “The lead generators got to work. They were brilliant. The first thing that they managed to do was get into the plant and start speaking to the foreman. They said to the foreman: ‘If you get us someone at our sausage and chip suppers we’ll pay you £80. If that person then becomes a client, we will pay you even more.'”
“We had process driven advice. We had people able to take 20 or 30 leads in a week and somehow or other make a recommendation that quickly. TVASs were being shipped off to specialists, quotes were being sent off by courier, [IFAs] had never, ever been looked after so well.”
Though many cash transfers were valued only at 25 times the pot, lower than the 40 times or higher transfers that have been seen in the rest of the market, Tapper said the financial position and experience of the steelworkers meant that they were bound to have taken the cash value in most instances.
The average cash in hand offered to steelworkers was £400,000, after a change in the discount rate, when younger clients in particular saw transfer values double, breeding a “buy now while stocks last” mentality.
Tapper cited examples where he had met workers who could not understand the documentation provided because they are illiterate.
Tapper says: “We were dealing here with really, really, really vulnerable people. People who thought that a £30,000 pension was worth £30,000. When they found a £30,000 pension was worth £750,000, they thought bingo…All my Christmases have come at once.”
Trustees have admitted they underestimated the volume of transfer value requests they received, according to Tapper, but he also noted that there is significant difference in estimates of DB transfer volumes and where the investments end up between regulators, government agencies and private companies.
“We have really made a mess of this,” he said.