British Steel Pension Scheme transfers and the coronavirus crisis
Markets have fallen dramatically as a result of the coronavirus crisis, with UK shares losing over 30% of their value. Pension investors generally have diversified funds, so most won’t have seen their investments fall in value by quite that much. Even so, these are frightening times and a powerful reminder of the value of final salary and other defined benefit (DB) pension schemes.
This is particularly true if you are one of the former members of the British Steel Pension Scheme (BSPS) who were advised to transfer out rather than move into the new scheme (BSPS2) or indeed the Pension Protection Fund (PPF). BSPS and PPF both provided ongoing guarantees and so the decision to opt out of that risk-free environment following unsuitable advice is likely to sting now more than ever.
In addition, if you are still working for Tata Steel, you will have seen the value of your Aviva personal retirement savings plans plummet.
What have you lost by transferring out, and how has this been affected by coronavirus?
To understand what you have lost, it is necessary to understand how valuable BSPS2 is.
BSPS2 provides a guaranteed retirement income, the level of which is determined by your earnings and the length of your employment with the company. It provides 1/60th of its members’ final salary for each year of service up to 31 March 2012 and 1/65th thereafter, so a member retiring today aged 65, on a salary of £30,000 and having put in 40 years’ service, could expect a starting income of just under £20,000 (30,000/60 x 32 = £16,000 plus £30,000/65 x 8 years = £3,692). That £20,000 would then increase every year in line with inflation (albeit that increases are capped for benefits accrued after 2006). Eventually, on death, if you had a spouse, the income would continue being paid to your spouse, albeit at a reduced rate of 50%.
Make no mistake, these are valuable benefits. To put them in context, the cost of buying an annuity (a guaranteed income for life) to replicate these benefits is currently as much as £685,000. A personal pension fund of this size is barely a dream for most people retiring on a salary of £30,000, and to accumulate such a fund will generally require them to take investment risks way beyond what they would ordinarily tolerate.
But the key point is that BSPS2 provides these benefits without any investment risk at all.
If you transferred funds out, you may now have a personal pension plan. In a personal pension plan, you are entirely responsible for investing the fund and bears all of the investment risk. Financial advisers can advise, and investment decisions can be delegated to a fund manager, but involving them has a cost. This must be offset by slightly higher returns – and you still bear the risk.
No-one can predict exactly what will happen in the world, or what the effects of it might be on investment returns. Coronavirus is just one of many ‘unforeseeable’ events that could have come along at this point to derail your journey towards retirement.
One thing is certain: if your goal is a pension fund of a certain size by the time you come to retire, you are now much further away from it. No-one knows how long the markets will take to recover.
What should you do if you’ve transferred out of the BSPS?
In our view, the key things you should do are:
- Take advice from a regulated financial adviser, if you haven’t already. The damage may already be done, but you should still satisfy yourself that your investments are suitable going forward and take steps to minimise any further damage. You may for example have to delay your retirement date, accept a reduced level of income, or increase your contributions. Fortunately, those still working for Tata Steel do at least have the benefit of a very good employer contribution.
- Seek advice on a possible claim for compensation. The Financial Conduct Authority (FCA) imposes quite stringent standards on financial advisers recommending pension transfers. In particular, they are required to start from the assumption that a transfer is not suitable and therefore should not be recommended. Despite this, the FCA’s own research suggests that over 50% of all pension transfer advice since 2015 may have been unsuitable. The proportion may be even higher for BSPS members who transferred out in and around the time to choose period in late 2017. If your transfer was unsuitable, you should be entitled to compensation, and the amount you can claim may surprise you.
- Ensure that you make any claim within the legal time limits. Pension transfer claims generally have to be made within six years of the date when the fund value was transferred from the BSPS to the relevant DC scheme. More time may be available if it wasn’t clear at the point of transfer that the advice was flawed or had caused a loss, but this is a complex area.
How we can help you with a British Steel pension mis-selling claim
- We already act for a large number of former BSPS members.
- We can advise you on whether you have a good claim. We have unrivalled experience in this area and are currently acting against over 60 firms.
- We can also arrange loss calculations for you. Claims may be worth significantly more than you think.
- If you want to make a claim, you will first need to complain directly to your financial adviser and give them an opportunity to set things right voluntarily. You can do this yourself – it doesn’t have to be a lengthy complaint – and they are required to respond meaningfully. In our experience, not all advisers deal with complaints as they should, indeed we have known advisers to threaten legal action in response! Do not be put off; we can help if necessary.
- If the adviser rejects your complaint, you can refer your complaint to the Financial Ombudsman Service (FOS), which can award up to £160,000. We have an enormous amount of experience in doing this for former BSPS members and other clients.
- Some pension transfer claims are worth more than the £160,000 available from the FOS (a good reason to have your loss calculated in advance). The only way to claim compensation of more than that is to use the courts. We can advise you on whether court proceedings are appropriate for you, and in appropriate cases we may be able to structure a group action.
- Many advisers are becoming insolvent as a result of claims against them. If that happens, we can help you claim compensation from the Financial Services Compensation Scheme (FSCS), submit proof of debt to the liquidator and press for the directors’ actions to be investigated where relevant.
If you would like to discuss your BSPS pension with us, please contact a member of our Financial Services Litigation team. We offer a free initial consultation and can act on a no-win no-fee basis. This means that if you don’t receive compensation, you will not pay us anything.
You can find answers to some of the questions we are frequently asked about BSPS pension transfers in our blog, steel workers and pension transfers.