British Steel workers 'robbed of their life savings' as watchdog failed to protect them

Around 7,800 British Steel workers were convinced to transfer their pension to a riskier scheme and some lost up to £489,000, Parliament’s Public Accounts Committee said.

It also found the Financial Conduct Authority (FCA), which regulated the 69 financial services firms involved, “failed to take preventative action” to protect workers from “serious financial harm”.

The workers were on a defined benefit pension, which provides a guaranteed income based on an individual’s salary and the number of years they have worked, but were told to switch to a defined contribution scheme, which is held in investments, by advisers who were incentivised by earning higher fees.

It came after the British Steel Pension Scheme was restructured in 2017 because its principal sponsor, Tata Steel UK, decided to cut ties due to severe financial difficulties.

According to a new PAC report, the regulator was consistently “behind the curve in responding to unsuitable pension transfer advice”, despite being aware of the potential risks to consumers following a change in legislation on pensions in 2015.

The FCA provided “unsuitable” advice to around half (47 per cent) of the British Steel workers, due to a lack of knowledge about the pension scheme they were being told to switch to, and it used a “light touch” when dealing with the advisers.

Just one financial services firm has been fined and a quarter of the workers have submitted complaints to the FCA, but “many have not been compensated fully”.

The PAC said those who received bad advice could be entitled to around £71.2m in compensation from advisers, under a scheme proposed by the FCA, but that figure “may end up being significantly higher”.

However, some firms have gone into insolvency so some of the money will have to be raised by an Financial Services Compensation Scheme levy, which forces compliant firms to shoulder the cost of unsuitable advice.

Dame Meg Hillier MP, chair of the Public Accounts Committee (PAC), said: “Whatever your views on the pension freedoms introduced in 2015 they clearly came with significant risk.

“Yet, a full two years later the FCA was still behind the curve when the British Steel pension scheme was opened up for unscrupulous financial advisers to transfer steelworkers’ life savings out of a gold-plated scheme and into whatever ‘investment’ would produce the highest advisor fees.

“The head of the FCA at the time, Andrew Bailey, stressed to the PAC that these were the ‘most complicated financial decisions a person could make in their lifetime’ - so how was it that even with two years lead time the organisation was unprepared: first for the systematic mis-selling that robbed thousands of their life savings and retirement plans, then in coming up with a redress process which is hard for those affected to navigate.”

'Working people in this country need a regulator that protects them'

Nick Smith, MP for Blaenau Gwent, has been campaigning on behalf of the former British Steel workers for four years.

“The FCA failed to get a grip on this scandal at the outset, was slow to respond in the aftermath and not nearly enough has been done to hold those responsible to account," he said.

“Working people in this country need a regulator that protects them and is able to take strong action against the financial sharks that would target them.”

The FCA has not apologised, but said it will "carefully consider" the report.

A spokeswoman added: "We’ve proposed a scheme which should see advice firms pay over £70 million of compensation to steelworkers. That’s in addition to over £70 million which has already been paid out. And people affected don’t have to wait for the scheme to be in place to make a complaint.

“We’ve also made sure that only firms with the right skills and experience can provide advice on pension transfers in future – over 700 firms have stopped doing so due to our work. We’ve also learnt real lessons for the future, including improving how we work with other regulators.”