The work and pensions select committee has called for a ban on contingent charging in a report examining how financial regulators have dealt with the British Steel pension saga.
In the report released this week, the committee blasts The Pensions Regulator and the FCA for their handling of the “major misselling scandal” relating to the British Steel Pensions Scheme.
Committee chair Frank Field accuses TPR of “fiddling while Rome burns, when it should have seen this rip-off coming”.
Of the FCA, Field says he “can’t see much evidence of it working better for the people it is meant to protect” since it rebranded from the FSA.
The report calls for a ban on contingent charging, which it says is “a key driver of poor advice”.
It says the FCA must improve its online register of advisers and argues it would be “reckless” to drop the requirement for advisers to start from the presumption that a DB transfer is a bad idea.
The committee calls on TPR to conduct a review “learning the lessons of how [BSPS members] were let down”.
It says they were “shamelessly bamboozled” into moving their money to high-risk funds with punitive charges, and “exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called ‘introducers’”.
MPs found there were 2,600 transfers out of the scheme worth a total of £1.1bn.
The average value was £400,000 but in around 20 cases it was more than £1m.
Members were charged advice fees of around 2 per cent and moved into funds with exit penalties as high as 10 per cent.
Field says: “I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing ‘impartial’ advice on a decision like this. It is bad enough failing properly to enforce the rules there are, but
when the rules are this weak?”
He says: “Our financial services regulator has been rejigged and rebranded but
I can’t see much evidence of it working better for the people it is meant to protect: individuals making life-changing financial decisions.”
He adds: “To propose, as the FCA did in July last year, abandoning the adviser
presumption against transferring out of a gold-plated, stable, indexed
pension scheme: it really makes you wonder whose side they’re on.”
Yesterday, a notice was published that Active Wealth, one of the advice firms at the centre of the scandal, had entered liquidation.
In response, the FCA says in a statement that it agrees with the committee that DB transfers are a “very important” issue and that it has been carrying out “considerable work” on DB transfer advice.
The statement says: “We have also taken detailed, extensive and robust action on the British Steel Pension Scheme to help steelworkers and we are pleased this has been recognised.”
It says: “We believe the committee’s recommendations are sensible. We are currently looking at the register to see how we can make it easier to use. We are also reviewing the rules that apply to firms advising on pension transfers, and will consider this report as part of this.”
“The FCA remains focused on ensuring consumers are protected.”
A TPR spokesman says: “We worked closely with the British Steel Pension Scheme trustee following the complex restructuring of the pension scheme which we approved in August last year.”
“We believe this was the best possible outcome for everyone involved in what was a very challenging situation. We also reviewed the communications sent to members by the trustee about their options and were satisfied they properly warned of the dangers of poor financial advice and scams.”
“We encouraged members of the BSPS scheme to engage with the consultation process. Our activities included taking part in a panel discussion event in Port Talbot last December, writing to all members of the scheme, and publicising the issues in the local press and on social media.”
The FCA and The Pensions Regulator are working on a pensions regulatory strategy to set out how they will work together to tackle risks to the pensions sector in the next five to 10 years.