The British Steel Pension Scheme has been in the headlines a lot over the last few years, but the mis-selling scandal that engulfed it last year means it is likely to remain in the news for some time to come.
Tens of thousands of current and former British Steel workers who were part of the British Steel Pension Scheme may have lost substantial sums of money. Those losses are the result of bad financial advice.
How did this all happen, who is to blame, and what happens next? Here is what you need to know about the British Steel pensions mis-selling scandal.
The End of the British Steel Pension Scheme
The costly saga started with a decision by Tata, the Indian-based owners of British Steel, in 2017. In simple terms, if the company continued to sponsor the British Steel Pensions Scheme as it had done before, it would have gone bust. Therefore, it restructured the fund that, at the time, was worth £14 billion and had 124,000 members.
The restructuring opened the door for financial advisors to sell new pension products to members of the original pensions scheme. This marked the start of what has now developed into the British Steel pensions mis-selling scandal.
How Did This Become a Scandal?
Tata employs 8,000 people in the UK, but there are well over 100,000 retired steelworkers who were also part of the British Steel Pension Scheme. Everyone in the scheme had their own decision to make whenever Tata decided it was giving up its responsibilities.
Essentially, members of the British Steel Pension Scheme had three options:
- Enter a new scheme set up by Tata
- Enter the Pension Protection Fund
- Transfer money out of the scheme completely to invest in a new pension known as a self-investment personal pension, or SIPP
The third option is where problems started to occur. This is because many of the people who transferred money out of the scheme to a different form of investment did so on bad advice.
The Work and Pensions Select Committee at Westminster looked into this issue, raising a number of concerns. This included concerns about fees paid to financial advisors, particularly fee structures where advisors only get paid whenever the pension holder transfers their pension.
The main issue is that the original British Steel Pension Scheme as well as the replacement scheme and the Pension Protection Fund are (and were) all regarded as stable pension investment schemes.
Many of the SIPP schemes that current and former British Steel workers were encouraged to transfer to, however, were much riskier. In addition, those people did not have the knowledge or experience to make such investment decisions.
How Much Money is Involved and Who is to Blame?
The amounts of money involved are huge – of the original £14 billion in the British Steel scheme, over £1.1 billion has been transferred out completely.
A report by the Select committee said Tata, the Pensions Regulator, and the Government failed to protect members of the scheme from a pensions mis-selling scandal.
The committee also criticised the Financial Conduct Authority as well as the independent financial advisors who targeted members of the British Steel Pension Scheme. It described the latter as vultures.
So, what does this mean for people who were part of the original British Steel Pensions Scheme? That depends on what they did with their pension. If they transferred it to anything other than the new Tata scheme or the Pension Protection Fund, they may have been mis-sold.