British Steel Pension Scheme: Transfers

Jack Dromey Excerpts

Wednesday 10th April 2019 Westminster Hall

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Howarth. First, I congratulate my hon. Friend the Member for Blaenau Gwent (Nick Smith) on securing the debate. I praise my hon. Friend the Member for Aberavon (Stephen Kinnock), who has played a major role in the drive for justice for those who were cheated on their pensions, the work of the APPG and the co-operation of colleagues from the SNP. I also welcome to her first Westminster Hall debate the newly elected Member for Newport West, my hon. Friend the Member for Newport West (Ruth Jones), who will, I know, be a strong champion of the people of Newport West.

A good pension is about security and dignity in retirement. The people of Britain deserve nothing but security and dignity in retirement. People work hard, build our country and, when they come towards retirement, plan ahead for the holiday they had always dreamed of, or to help their kids to be able to buy their own home. There can be nothing more painful than to be cheated out of what they have worked for all their lives.

I sometimes say I have been around since Churchill was a boy. I remember the era back in the 1970s and 1980s, when half the population of Britain was in good final salary DB schemes. We have made some progress—for example, the battle on auto-enrolment that we fought and won when Labour was in power, and which I welcome being carried forward by this Government—but to be frank, there has been a depressing direction of travel for good final salary schemes. There have been too many scandals, but none more scandalous than that of British Steel, and that is emblematic of the problem we face with the regulation of DB pension schemes in the UK.

As my hon. Friend the Member for Blaenau Gwent stated, when a deal was struck to keep Tata afloat, members belonging to the £15 billion British Steel pension fund were given the option to shift their assured benefits to the Pension Protection Fund, to join a new retirement scheme backed by Tata, or to transfer to personal pension funds. That led to what was called a “feeding frenzy” at the site in Port Talbot, as dodgy introducers preyed on workers who were more than likely confused about the position of their pension, and who may not have had the financial support or education needed to make such an important decision. Some advice was available, but often it was simply not good enough, or it was technical and unintelligible. Those rogues, those introducers, should be utterly ashamed of themselves. They bought meals for workers in local pubs, and convinced them to transfer their pensions into totally unsuitable schemes. Some people could have lost up to six figures from their pension total.

The Financial Conduct Authority has been probing concerns that pension changes that involve 130,000 members of the Tata retirement fund appear to have been affected. A study of the 8,000 people who transferred their pension demonstrated that 58% received advice that was simply not suitable, and the Pensions Regulator calculated that in 2017, the average loss was £94,000.

I will never forget the heartbreaking story that I was told by the chief executive of the Pensions Advisory Service during the passage of the Financial Guidance and Claims Bill that introduced the Single Financial Guidance Body. The Pensions Advisory Service set up an advice facility on site, and one of the first people to come in was a big burly steelworker and shift supervisor. He sat down and burst into tears. It turned out that he had been duped by one of those introducers, and it had cost him tens of thousands of pounds. The main reason for his grief, however, was not what he had suffered and would endure for the rest of his life, but the fact that the 20 guys on his shift had all followed his lead. He said to the Pensions Advisory Service, “I’ll never, ever be able to forgive myself, because the mistake that I made has had catastrophic consequences for the people I’ve worked with for 10, 20 or 30 years”.

The British Steel case was central to our work during the Financial Guidance and Claims Bill, and I pay tribute to the work of my hon. Friends the Members for Blaenau Gwent and for Aberavon, and many other Members, particularly from Wales, who played a noble role in strengthening the legislation to crack down on the outrageous. Real progress was made. Cold calling more generally was central to the debate on the Bill, and the ban on pension cold calling was a significant step in the right direction. However, we must now go further and introduce a ban on all cold calling—there were constructive discussions about that, and it would be helpful if the Minister would update us on the Government’s thinking—and we must also ban the work of introducers. From January this year there has been an end to pension cold calling, but more needs to be done.

More generally, the introduction of the Single Financial Guidance Body is a welcome step towards greater financial education and security. It brings together the three previous bodies, which all did good work, into a new, more effective body for the next stages. Crucially, it needs to be adequately resourced, not least because of the role that it will play in the oversight of the dashboard process, but it is welcome that it has been established.

Having said that, lessons need to be learned, and significant further progress must be made. On the learning of lessons, and the need for action, the right hon. Member for Birkenhead (Frank Field), the Chair of the Work and Pensions Committee, said of the Committee’s findings earlier this year:

“British steelworkers were roundly failed by the official regulators meant to protect their life savings. They were given precious little to guide them through murky waters filled with scammers looking to snatch their pensions—scammers who had little to fear from the FCA’s grossly inadequate action at the time”,

which I think it now acknowledges. The right hon. Gentleman continued:

“Now it seems they are being sold short again on what even the FCA calls ‘rightly’ deserved compensation. The FCA has ridden to their defence and urged the FSCS to be more generous, but the FSCS is clinging to rules the FCA says needn’t apply.”

That is a powerful indictment of what happened, and a call for further action to be taken. That is essential because—I say this with some sadness—British Steel is not the only outrageous case of pension mishandling. We have seen too many other scandals, most notably BHS and Philip Green, who ought to be utterly ashamed of the way he has conducted himself over the years, and what happened with the collapse of Carillion, which I will never forget.

In my constituency, we had a first-class apprentice training centre that was operated by Carillion and that had 60 apprentices going through it at any one time. When Carillion collapsed on the Monday, they were told, “Don’t worry. You’ll be okay.” On the Tuesday, they all got called in and sent home at lunch time—a number of them in tears. One young man, who had suffered from autism but whose life had been moving forward in the right direction, was sobbing uncontrollably and saying, “What am I going to tell my mum?”

On the pensions issue, Carillion has been centre stage in our discussions, including with the Government, about the further steps that need to be taken. Some of the proposals in the DB White Paper are welcome, such as stronger criminal sanctions for directors neglecting pension schemes—although I will come on to the fact that the possibility of criminal action is there in the here and now—stronger powers for TPR, and clearer standards on scheme funding.

[Stephen Kinnock]

On the issue of further action, particularly regarding legislation, is it not vital that the Government recognise the huge risk in divesting pensions? If people are not defaulted into the new scheme that is being set up, and it is left completely open to them, there is a real risk that they will be easy prey for unscrupulous financial advisers. Should the Government not bring forward a statutory instrument that makes it the default to go into a new scheme, rather than to go into the Pension Protection Fund? That is particularly important when all the actuarial advice is that it would be best for the vast majority of those pensioners to have gone into the new scheme and that they should have just been defaulted into it. That can be done by statutory instrument.

--- Later in debate ---

[Jack Dromey]

My hon. Friend makes a powerful point. In the debate over the last 12 or 18 months, we have called that the progressive default option. There is no question but that it has enormous merits and it would be helpful if the Minister were to comment on it in his response.

The experience with Carillion pointed to more general problems that started with the Government’s lamentable non-intervention. Despite the fact that the company was getting into greater and greater difficulty, and despite repeated profit warnings, they continued to let contracts to Carillion. The regulators were aware of the risks at a relatively early stage, but they did not use the full extent of their powers to avoid unnecessary burdens on business. I kid you not. I quote from what was said at the time.

The board, which failed in its duties to workers and pension scheme members, continued to pay out large salaries, bonuses and dividends, but did not pay into the pension deficit. The trustees did not alert regulators to the extent of the problems early enough. Asset managers continued voting through large pay packages despite profit warnings, and the auditors did not spot the signs of trouble early enough. There is a raft of problems associated with the scandals that have befallen too many workers in our economy. The lessons from Carillion in terms of the need for action more generally are powerful indeed.

At the next stage it is vital that the regulators act to make sure that such events never happen again. They need to become more people-focused, ensuring that workers’ pensions are protected at all costs. Rogues in the industry must be sought out and punished, ensuring that they never work in the industry again, and the law needs to be strengthened. To that end, there have been constructive discussions with the Government on presenting a Bill as soon as possible to introduce the stronger powers contained in the DB White Paper to go after rogues. Perhaps the Minister will comment on where that legislation is. It is important for two other reasons, including the introduction of the pensions dashboard—for example, the compulsion on providers to provide the necessary information to the dashboard—and the collective defined contribution pension scheme that has been agreed between Royal Mail and the Communication Workers Union.

There are welcome measures on pensions that can and should be taken where there is a degree of consensus, even if we argue that the Government should go significantly further. The sooner they are introduced into legislation, the better.

In conclusion, this is little comfort to the workers of British Steel or those in Carillion, but the tragedy that befell them was at the centre of the drive for changing and strengthening the law last year. It is at least something of a legacy, even if it is cold comfort to them. At the heart of it were MPs such as my hon. Friends the Members for Blaenau Gwent and for Aberavon, who played a major role in highlighting the scandal and demanding that action be taken.

At the next stages, I stress again that it is important that lessons are learnt by all those I have referred to and that the law is strengthened. I will finish by referring to something that my hon. Friend the Member for Blaenau Gwent said, and he was absolutely right. Is it necessary to change the law in the ways that I have argued for? Yes, without hesitation, but there are powers that exist now in criminal law, and those powers should be used. I know the workers of Port Talbot would say that those evil men and women who cheated them on their pensions need to be investigated, tracked down and put in the dock. An unmistakable message must be sent: if you rob workers of their pension scheme, you are an utter disgrace and, will end up in the dock, and, in extreme cases, in prison.

--- Later in debate ---

[John Glen]

Following our meeting, I undertook to speak to Andrew Bailey, the chief executive. We are due to meet every few months, and our next meeting is imminent. I will speak to him about that. A number of live investigations are under way; I do not have investigative power myself, but I will take a close interest in those investigations. Individual companies—I will not name them—are being actively investigated now, and I expect the FCA to make announcements and recommendations consequent to those investigations imminently. I am not privy to the detail, but I am taking a close interest and will be speaking to the chief executive, because I realise that time is pressing on. This morning we have heard vivid accounts of individuals and families ruined by these decisions, and I take the matter seriously.

To get back to my script, the FCA leads on financial advice and has considerable power to act against firms and individuals who provide negligent advice. To be clear: the FCA can impose a financial penalty on a firm, require the firm to pay redress to its customers, restrict the firm’s permissions, or prohibit individuals from operating in financial services. The FCA can bring criminal prosecutions. I hear the enthusiasm for that action being taken, and I think the FCA hears it too, but it works closely with other organisations to support criminal prosecutions. Both the Government and the FCA are targeting their attention on the effective regulation of financial services and wider work to tackle scams, including the recent implementation of a ban on pensions cold calling.

[Jack Dromey]

That is helpful, but in the case of British Steel, I think it would send absolutely the right message to the workers concerned if the Minister said today that a sense of urgency is needed on the part of the FCA and the South Wales police about investigating potential criminal wrongdoing and taking action. The workers back at the plant would welcome that.

[John Glen]

I am happy to respond to that intervention by saying that it is absolutely imperative that the FCA works with all bodies to hold those individuals to account and to take the appropriate action in the light of the evidence presented to it. This is urgent; the individuals who have suffered this experience expect that of the FCA, and I believe the FCA is keenly aware of that.

The hon. Member for Blaenau Gwent talked about the regional presence of the FCA. It has more than 3,000 employees and runs an annual programme of regional supervisory workshops under its “Live and local” banner, in which it educates firms and gathers intelligence from across the country. That has included recent workshops on DB pension transfers. Although the FCA does not have a series of regional offices, there is a clear expectation on the part of the Government and the FCA itself that it will go out into communities across the country, to ensure it has a presence among the 35,000 IFAs that operate.

The regulator is also undertaking further work on the pensions transfer advice market. The FCA is analysing responses to a recent data request from firms that undertake pensions transfer advice and is planning a programme of work, which is likely to include further engagement with stakeholders, targeted education for firms involved in providing pension transfer advice, and assessment of those firms significantly involved in the provision of DB transfer advice. The FCA has already announced a requirement for all pension transfer specialists to obtain the same qualifications as fully regulated investment advisers, alongside their existing qualifications, by October 2020. In relation to the BSPS, the FCA intervened to stop 11 firms from providing pensions transfer advice, and several firms are still under investigation.

It is important to ensure that consumers are protected from poor-quality and unsuitable advice, and there are proper mechanisms for redress when they receive poor advice. The first port of call for consumers to seek compensation is to approach the firm itself. If they cannot resolve the issue, consumers can take their complaint to the Financial Ombudsman Service. The FOS is a free, independent service that provides an alternative to the courts. The maximum award it can recommend was increased at the beginning of this month from £150,000 to £350,000 per individual. If firms go into liquidation and cannot provide compensation to individuals, a second tier of protection is open through the financial services compensation scheme. The FSCS is mainly funded by an annual levy on the financial services industry. Since its founding, the FSCS has helped millions of people and paid billions of pounds in compensation.

It is important to note that in the British Steel case, only a very small minority of former steelworkers who have taken their claims through the FOS and the FSCS have not been fully compensated. That group were all clients of one firm, and the Government’s decision to make financial advice mandatory for those seeking to transfer their DB pension has therefore guaranteed a crucial layer of consumer protection to those individuals.

“Phoenixing”—firms or individuals seeking to avoid liabilities arising from poor investment advice by re-emerging as a different legal entity—can leave consumers and taxpayers out of pocket and tarnish the reputation of the industry. The FCA has a range of tools to identify and act against firms or individuals who try to avoid responsibility in that way. Those seeking to liquidate firms must provide information about outstanding complaints, and the assets of collapsed firms cannot be sold on or passed back to former directors without the prior consent of the regulator. The FCA has already used those powers to prevent several individuals and businesses from avoiding their liabilities, and other cases are under investigation. This has caused some individuals to withdraw their applications, knowing full well that they will not get through. Although I acknowledge that this will not give absolute comfort to those who have suffered, I believe that we now have in place a regime that will prevent the practice in future.