British Steel Pension Scheme: Transfers

Nick Smith Excerpts

Wednesday 10th April 2019 Westminster Hall

[Nick Smith (Blaenau Gwent) (Lab)]

I beg to move,

That this House has considered pension transfers and the British Steel pension scheme.

For many of us, pensions are a distant, complex and opaque topic. Everyone hopes that their pension will provide financial security for their family’s future. It is often the single biggest pot of money that anyone will have, but that makes pension pots ideal targets for mis-selling. Unfortunately, in recent years pensions mis-selling has got worse. Since further pension freedoms were brought in four years ago, it is easier to transfer out of defined-benefit pension schemes. More than 200,000 people have done that, but as transfers have increased, so have the problems. The compensation paid out for poor transfer advice increased to £40 million last year.

I called for this debate because of a specific mis-selling crisis that affected hundreds and potentially thousands of people across south Wales in particular. Two years ago, the British Steel pension scheme began to restructure its fund after a difficult period for the industry. Scheme members had a hard deadline to make a critical decision: they could go into a new scheme, be defaulted into a lifeboat fund or transfer out. They had to decide against a backdrop of serious uncertainty about the scheme and the industry. The scheme’s administrators were under enormous pressure, with 4,000 calls a day. Vital information about pension advisers from the Financial Conduct Authority was often highly technical. All that helped to create a perfect storm.

[Nick Thomas-Symonds (Torfaen) (Lab)]

I congratulate my hon. Friend on securing the debate and commend the work that he is doing in this area. He has mentioned the Financial Conduct Authority. Does he agree that one issue here is regulation and that too often those who suffer a loss are pushed in the direction of a civil remedy when actually we need stronger enforcement and tougher criminal sanctions?

[Nick Smith]

I agree. I think that the FCA has the right teeth but is not using them and that the police need to intervene much earlier.

[Jim Shannon (Strangford) (DUP)]

I, too, congratulate the hon. Gentleman on initiating the debate. I do not have any people with steel pensions in my constituency, but I am here to support the hon. Gentleman and to do so on the record. He mentioned that 4,000-plus people a week were trying to get details and advice on how to move forward. Is not the onus on the FCA and, ultimately, the Government to ensure that the necessary advice is there and available? The volume of contacts being made clearly indicates that the system is unable to respond in the way it should.

[Nick Smith]

The advice is there. The difficulty is that for many people it is too technical and complicated; working through it is really very hard.

Transfers were talked up, and pension sharks soon began circling around the key steelworking sites across south Wales and the rest of the UK. They were often facilitated by unregulated introducers, through word of mouth. For example, constituents of mine were approached by a rogue financial adviser at their caravan while they were on a family holiday. Wider possibilities were common currency: a place in the sun, a conservatory and a deposit for a son’s or daughter’s new home were all said to be within reach.

The pension changes meant that it was easier to transfer from a stable fund into investments that were far riskier, on the promise of better returns. Unfortunately, it meant that a safe bet could turn into a bad bet, and a high fee was often part of the deal too. It was the case that 7,800 steelworkers transferred out altogether, of whom 872 had transfers arranged by firms that were eventually ordered—ordered—to stop advising by the FCA. One steelworker lost £200,000. Many others lost tens of thousands of pounds. Many suffered incredible stress and anxiety. I heard yesterday that £1.8 million has been paid out in compensation to steelworkers so far. I emphasise the words “so far”. Because that might not grasp the full scale of the issue, the FCA has now reviewed the files of 2% of the nearly 8,000 steelworkers who transferred out. It found that 58% of the advice was not suitable, which means that the tally of those who lost out could run to several thousands. To deal with that possibility, the FCA now needs to set out a clear programme of how it will identify the steelworkers affected, how it will let them know and what practical support it will provide to help to get them through this process.

[Chris Elmore (Ogmore) (Lab)]

I pay tribute to my hon. Friend for securing this debate and leading on this issue, as he has now for several years. On how the FCA now informs steelworkers, does he agree that part of the problem is that lots of steelworkers will simply not know that this has happened and will not understand that they have received bad advice? Given that these are complicated issues, as he has mentioned, that means that they will often just ignore the issue in the hope that it will somehow resolve itself. This could be yet another pension scandal waiting to happen, purely because people do not wish to face up to the realities of what is happening.

[Nick Smith]

My hon. Friend makes a really good point. The FCA is a large organisation based in London. I believe it does not have sufficient resources to help consumers on the ground in places such as Port Talbot or Shotton, or across the country, where pensioners need support at their homes.

[David Hanson (Delyn) (Lab)]

The concerns that my hon. Friend has raised are valid in north Wales among steelworkers who used to work at the Shotton plant, many of whom live in my constituency. A cursory look at the FCA website reveals that there are 17 firms that the FCA is currently examining. I did not know that until I looked at the site in preparation for this debate. How are steelworkers supposed to know who those 17 firms are?

[Nick Smith]

My right hon. Friend gets to the nub of the situation. Who does one trust when one has a pot of gold and people want access to it? He poses a really important question. The FCA has got to help our steelworker pensioners and their families.

It can be argued that this was a unique situation, but many of the underlying problems that allowed it to happen are still there. Rogue financial advisers do not face sufficiently tough consequences from the regulators. The FCA’s register has been improved, but consumer information sometimes remains unclear. The support for people who might have been mis-sold pensions is insufficient.

I recognise that some steps have been taken to improve co-ordination between regulators. That is welcome, but much more needs to be done. At the moment, the pension sharks have generally received administrative sanctions only, but I think they need to face serious penalties. Will the Minister scrutinise the effectiveness of the FCA’s enforcement regime? Steelworkers say the FCA needs to impose heavy financial penalties on bad financial advisers. I think it needs to employ its powers much more often, as it seems this has not been done sufficiently.

[Stephen Kinnock (Aberavon) (Lab)]

I congratulate my hon. Friend on securing this debate and pay tribute to him for his work for our constituents in this important area. At our recent meeting with the FCA, the issue of mandatory insurance wording came up. Those unscrupulous financial advisers are not taking out proper insurance—when they go bust, there is no source of compensation for the steelworkers who have been ripped off. Does my hon. Friend agree that the Minister needs to take urgent action to improve the regulatory framework, not least in the area of mandatory insurance wording?

[Nick Smith]

My hon. Friend makes an important point. Given reports that the FCA is investigating so-called introducers in connection with a major scam, the Government should now ensure that they, too, are regulated. The Treasury has to take action to ensure that financial advisers always have—this comes to my hon. Friend’s point—sufficient insurance to pay out, should they go into administration.

Will the Minister ensure that the FCA updates the Treasury on how it is supporting the potentially several thousand steelworkers who might have received poor transfer advice in this instance? The Treasury needs to co-ordinate with the Department for Work and Pensions and other key bodies in order to help victims of mis-selling to access the support they need. Although BSPS members have been supported by a strong team in Port Talbot, including a financial adviser and a lawyer, there needs to be a single initiative, aimed specifically at people who may have been mis-sold in cases such as BSPS.

[Stephanie Peacock (Barnsley East) (Lab)]

I am very grateful to my good friend for giving way and congratulate him on securing the debate and on the powerful case that he is making. In the consultation on the changes, concerns were raised that the burden could fall too heavily on scheme members, and we worry that that is the case. Our mining and steel communities built this nation. Does my hon. Friend agree that they should be looked after in retirement?

[Nick Smith]

My hon. Friend is a champion for miners’ pensions, on which she has done some great work, and I think she is absolutely right.

I press the Minister on the Treasury’s response to recommendations that others have made about the crisis. The Rookes review suggested that the FCA needs to look at how it handles advisers who have had regulatory issues in the past. Phoenixing, as it is called, has allowed some advisers to reinvent themselves to sell anew. There must be greater scrutiny to stop rogues re-emerging in the marketplace. The review also suggested that the FCA work with the Treasury and the DWP to use digital channels to help to communicate important information to pensioners and to help them.

Finally, the review suggested that the Pensions Regulator work with BSPS, trustees and trade unions—Community and Unite have been particularly good in south Wales—to select a panel of reliable financial advisers that members can use. Those advisers must be able to deal with the scale of the problem with BSPS and with the insurance needed. Can the Minister explain how the Department is progressing those recommendations and when we can expect the changes to be fully implemented?

In his valedictory speech, Mark Neale, the outgoing chief executive of the Financial Services Compensation Scheme, strongly advocated increasing the compensation limit in cases of poor transfer advice. They were powerful remarks, so let us listen to him. I ask the Treasury to actively support that proposal and to investigate how many people are currently suffering uncompensated financial losses because of poor advice.

We need justice for steelworkers who are ripped off. If the FCA will not do that, local police forces in south Wales need to pursue what appear to be complicated cases of fraud. The crimes are committed locally; the losses are clear and often substantial; and those responsible are identifiable. I call on the police forces across south Wales to open files and thoroughly investigate whether those cases amount to fraud. Criminal investigations have to start. If they do not, I call on the forces to state publicly why not.

The financial and emotional toll that this crisis has taken on my constituents and many others has been heavy. They worked hard for decades to earn their pensions, and they expected a secure pot to provide for them and their families. That was put at risk because of the wrongdoing of a few bad actors and a weak response from the regulators. Steelworkers and their families have been let down. The Government and the FCA must improve their act and support those people better. The rogues who ripped off steelworkers and their families must be held to account. If the regulators cannot do that, the police need to step in. We need to make sure that good people see their hard-earned money better protected in future.

--- Later in debate ---

[John Glen]

I have listened carefully to the hon. Gentleman’s interventions, and he is right to say that 6.6% of the 122,000 individuals who had those pensions did transfer out, and that, in general, the default option would not be to transfer out of a DB scheme. There is work going on to develop pathways. I am not clear, given that it is not my direct area of responsibility, about the status of that work. I think, however, that there is a challenge, in the context of the policy on freedoms that is now well under way, about how to reconcile that freedom with making the decisions in question. Perhaps I might pivot over to consider the DC schemes. I think what is happening is that many people decide to take the 25% tax-free lump sum and then do not necessarily make appropriate, or the best, decisions on the remainder of that pot of money. Work is being done on that, but with respect to the specificity of the default option, I cannot give the hon. Gentleman a definitive response now.

I think we are moving to a point where there will be default pathways that people will need to be advised on when they take advice. I think that is probably a sensible compromise that deals with the fact that, in some instances, not coming out of the DB scheme would not be the right thing to do. The hon. Gentleman will agree about that, although he is also perfectly correct to say that, generally, not coming out would be the right thing to do. There is work to be done, but I think progress is being made, and I acknowledge the sensible point he has raised.

[Nick Smith]

I want to focus on what the Minister calls the 6%—perhaps nearly 8,000 people—who may have been badly advised in this case. What is he going to do to get the FCA to up its game, contact those people and help them, in case they have been badly advised?

[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.

--- Later in debate ---

[Nick Smith]

Thank you, Mr Howarth for chairing what has been a productive debate on an important issue. There have been some strong contributions about some of the key problems that steel pensioners have had to work through in the last 18 months or so. In particular, my hon. Friend the Member for Aberavon (Stephen Kinnock) spoke movingly about the human impact on his constituents, who were at the epicentre of these problems. I have seen the impact too, and it has been heartbreaking.

My constituency neighbour, my hon. Friend the Member for Torfaen (Nick Thomas-Symonds), emphasised the importance of looking at the possibilities for criminal proceedings. I strongly endorse that point, which needs to be taken on urgently by the South Wales police or the FCA.

Other contributors spoke clearly about these serious issues, and about what needs to be done to help in the future. It is clear that a lot of things went badly wrong, and hard-working people found their life savings put at risk. The problems that have been highlighted today need to be addressed as a matter of urgency so that we do everything we can to prevent this from happening again further down the line. I hope the Minister will see through the changes that are needed, given the problems that we have identified today. We will work with him to do that.

Question put and agreed to.

Resolved,

That this House has considered pension transfers and the British Steel pension scheme.