The Financial Conduct Authority has published the final rules for the redress scheme for former members of the British Steel Pension Scheme (BSPS).
Firms will now need to review the advice they gave and pay compensation to those who received unsuitable financial advice. The watchdog expects more than 1,000 BSPS members to benefit from the scheme. The FCA added that it estimates the total redress paid to consumers under the scheme to be £49m under its “central scenario”.
This comes several weeks after the FCA said it will “take action” over firms miscalculating DB transfer redress.
In the event that the advice given is deemed as ‘suitable’, companies will need to provide documentation to the regulator so it can check whether customers would want to turn to the Financial Ombudsman Service to independently review the advice they received.
If the advice company that provided the unsuitable advice has failed, customers can make a claim with the Financial Services Compensation Scheme (FSCS).
Clients should be contacted between 28 February and 28 March 2023, with the advice being reviewed by the end of September 2023. They will be given their redress calculation by the end of December 2023 if they opt to receive a lump sum, or by February 2024 if they want the payment to be made into their pension, the FCA added.
Redress can be calculated via an FCA tool which will be made available to the advice businesses affected. It is based on how much money will be needed to top up a personal pension so that the client can purchase an annuity at retirement that provides “an income similar to what they would have received had they stayed in the BSPS”, the regulator explained.
The FCA expects the average payout to be lower than originally estimated – down 25% to around £45,000 ($54,400, €52,300) – since it now costs less to buy an annuity.
The watchdog is also looking to extend its temporary BSPS asset retention rules so that they can apply until advice firms have resolved all relevant cases.
Sheldon Mills, executive director for consumers and competition at the FCA, said: “We have consulted widely on a redress scheme for British Steel Pension Scheme members. We found that almost half the advice given to members was unsuitable – an exceptionally high level compared with other cases. Today we’re confirming the rules for the redress scheme, so that BSPS members can get the retirement they worked for.
“We’re working to get the scheme in place quickly to end uncertainty for members. We will be watching advisers closely and have put in place checks so that consumers can have confidence that they’re being treated fairly under the scheme.”
Less compensation than expected
Tom Selby, head of retirement policy at AJ Bell, added: “Today’s news will undoubtedly come as a huge relief for those affected by the British Steel pension saga and brings those who received bad advice a step closer to receiving redress. Anyone who was misadvised to transfer out of their defined benefit British Steel pension scheme now has certainty over how the plan to pay their money back will work and when they should get their redress.
“However, the total redress figure is expected to be over £20m less than previously set out by the FCA. This is partly because fewer people are now expected to receive redress and partly because annuity rates, used to determine the value of the payout, have improved substantially in 2022.
“As a result, the estimated average redress payment has fallen from £60,000 to £45,000. While this makes sense, some will undoubtedly be disappointed at this outcome. For those affected, today’s update should be seen as good news as it brings them closer to the end of a painful saga which cast uncertainty over their retirements and should ensure any financial damage done is rectified.”
Selby continued that the British Steel saga has damaged the reputation of and trust in the financial advice sector.
“Aside from the direct impact on members who were poorly advised, the scandal will also inevitably harm trust in retirement saving more generally,” he added. “Sadly, scandals such as Robert Maxwell at the Daily Mirror, Equitable Life and now British Steel tend to live long in the memory. As a result, the wider pensions industry will now need to redouble efforts to ensure people aren’t put off saving for retirement altogether.”