Scandal of British Steel pension savers who suffered trauma due to mis-selling - Greg Wright

But the trauma suffered by thousands of British Steel pension savers provides a cautionary tale.

Many were advised to switch their pension pots away from the company’s more lucrative defined benefits plans, with terrible consequences for their financial health.

The Financial Conduct Authority (FCA) has set out a plan which it says will deliver compensation worth £71.2m to those who were misled about their pensions.

Nearly 8,000 steelworkers, representing £2.8bn of the fund, chose to transfer out of the BSPS, a large defined benefit (DB) pension. Around 95 per cent of the BSPS members who transferred out had received financial advice from a regulated firm.

DB schemes are often described as “gold plated” because they provide a guaranteed income to members in retirement, based on how many years they have worked and the salary they have earned.

The FCA said that close to half (46 per cent) of all the advice it had reviewed turned out to be unsuitable.

Advisers will now be forced to pay compensation to those who received bad advice and switched away.

If the advisers have gone out of business, the Financial Services Compensation Scheme will step in, with payments expected to start from the end of next year.

Sheldon Mills, executive director for consumers and competition at the FCA, said: “The circumstances around British Steel Pension Scheme transfers were exceptional, with former members receiving significantly higher levels of unsuitable advice compared with other cases.

“We want individuals who lost out financially after receiving unsuitable advice to receive compensation through our scheme.”

A report from the National Audit Office reveals the scale of this scandal. The average loss for BSPS claims resolved by the Financial Services Compensation Scheme (FSCS) is £82,600, with individual losses being as high as £489,000.

The NAO said the Financial Conduct Authority (FCA), which was responsible for supervising financial advisers, told it that many of the advice firms had limited experience of processing large numbers of DB transfers.

Most advisers were financially incentivised at the time to recommend transferring out of the BSPS, even when it was clearly not in members’ interests, the NAO said. The FCA estimates 79 per cent of BSPS members receiving advice transferred out.

Meg Hillier, chair of the Public Accounts Committee, said: “The handling of the BSPS case was a failure from top to bottom. Many of the pension advisory firms gave bad advice to customers and the FCA, whose job it is to regulate these firms, was asleep at the wheel.

“Efforts to improve the pension advice market and provide compensation will be too little too late for many BSPS members.

“The bottom line is that many pension members have been left out of pocket and seen the rewards for their years of hard work melt away.”

It’s a story as old as time. Pushy salesmen were incentivised to strong arm thousands of unsuspecting workers into making life-changing decisions that left them poorer.

Now we are hearing the stable door being slammed shut long after the horse has bolted. The FCA’s plan to deliver compensation is welcome but it should have been delivered much earlier. The only effective deterrence is the imposition of lifetime bans for advisers who ruined the finances of these hard-working, honest people.

This type of scandal shatters public faith in financial advisers and the only way to restore it is with effective regulatory action.

The FCA must root out the unscrupulous advisers and make an example of them.

Only then will we be able to finally close this chapter which has brought shame to a whole sector.