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.
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?
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.
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.
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.
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.
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?
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.
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?
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.
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?
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.
It is a pleasure to serve under your chairmanship, Mr Howarth. I pay tribute once again to my hon. Friend the Member for Blaenau Gwent (Nick Smith) for securing the debate and for all the work that he does. He and I have worked on the transfer of steelworker pensions out of BSPS since 2017, which was when all Tata Steel workers were forced to decide whether to move into the BSPS 2 or transfer out into another pension scheme. Given that trust between employees and employer at that point was fragile to say the least, it is not too surprising—completely understandable, in fact—that about 8,000 of the steelworkers decided against joining the BSPS 2. Little did they know that the vultures were circling.
The behaviour of the unscrupulous financial advisers who ripped off these men and their families was completely inexcusable. The sheer size of the pension transfer exercise, the high level of publicity that the transfer received, and the workers’ deep-seated mistrust of the employer at that time, the trustees and Tata made for fertile territory for the parasites. The trade unions, steel MPs and the BSPS trustees all called on the Government to introduce a system of deemed consent regarding the transfer of BSPS 2. I was one of those MPs; I sent a letter to the then Pensions Minister, the right hon. Member for South West Hertfordshire (Mr Gauke). However, we were ignored and those hard-working, honest men were targeted, despite the fact that in only a very small number of cases was transferring out their best option.
These unscrupulous advisers are not stupid; they have behaved in a manner that is cunning, morally bankrupt and in many cases criminal. These events have had a dreadful effect on steelworkers in my constituency and their families. One man transferred £560,000 out on the strength of a 40-minute phone call with an “adviser”, who convinced him that it was what everyone was doing —40 years of service reduced to 40 minutes on the telephone. He believes that he was charged £11,000 to transfer out and for a 40-minute consultation. A man’s entire life plan was ruined by one phone call. Another was advised by one of the local advisers to transfer £348,858 out. He is now paying in excess of £3,500 a year in various costs and charges, as well as exposing himself to the risk of shortfall and dying after his pension pot runs out. That adviser played on the fear that BSPS was going to go into administration. They did not present my constituent with the facts or evidence, but approached the situation from the starting point that he wanted to transfer out, and facilitated that transfer without checking that it was in his best interest to do so.
Who were those unscrupulous financial advisers? The main culprits have been Active Wealth (UK) Ltd and a man named Darren Reynolds, who account for all but a couple of the 77 cases that have so far been taken up with the Financial Services Compensation Scheme. The FSCS has so far paid out £1.8 million to 61 of the 77 claimants, 16 of whom exceeded the £50,000 compensation limit—a limit that has since risen to £85,000. For those who have not been granted compensation, it is purely because they have not suffered a loss, not because they were not badly advised. I think I am right in saying that every single claimant was judged to have been badly advised.
It has been clear for some time that Active Wealth was just the tip of the iceberg. Several other advisers have been acting inappropriately; one did a lot of work in concert with a financial adviser who did not have the required permissions. The transfers were going through in about one hour, and some steelworkers never even met with an adviser. In another part of the country, in west Wales, an adviser had the required permissions, but by the end of 2017 had had their permissions to do pensions transfers revoked. Scores of steelworkers were days away from the transfer cut-off when that adviser circled in. Other advisers saw the writing on the wall and went into voluntary liquidation a few months ago. Those two advisers took their clients with them, literally next door.
Other sales tactics were entirely risible. In one case, steelworkers were turning up at an adviser’s office over the weekend because he had told them that on Monday the pension company would be stopping distribution in the UK. He was literally telling them to hurry up and buy; he spent 30 minutes talking to each steelworker about their pension. It is notable that those financial advisers are finding it easier to simply lock up shop, close their business down and walk away than to face up to what they have done. That, in effect, then limits the redress that steelworkers can receive to £50,000—now up to £85,000—under the Financial Services Compensation Scheme, and from £150,000 under the Financial Ombudsman Service. In effect, we have a deep structural problem in the system, with financial advisers able simply to lock up shop and walk away, rather than give redress to the people they have ripped off. That is a fundamental question for the regulator.
These men were let down not just by rogue financial advisers, but by the authorities: the regulator, namely the Financial Conduct Authority, and the Government. The FCA was far too slow to see the obvious risks and act to protect steelworkers from these vultures. It knew from its investigation in 2017 that more than half of the transfer advice being given was not up to its own standards, but even that, apparently, did not raise any alarm bells or red flags. Most shockingly, certain financial advisers who were under investigation still appeared on the FCA website. The fact that that information was unavailable to the steelworkers feels utterly unjust.
The focus now is to raise awareness among steelworkers who have not spoken up but are due compensation, and to ask them to come forward and seek advice. Something that we have all observed is the role of shame in that. Many steelworkers are deeply embarrassed and ashamed that they have been ripped off. They have found it extremely difficult to share that difficult information with their families and spouses—one of the reasons that more men have not come forward.
I recognise that this is an emotionally sensitive matter for those involved, who may be reluctant to overturn the rock and look at what they might find underneath. However, it is right that we do everything that we can to get justice for these men. Investment companies and self-invested personal pension providers must no longer be able to look the other way and adopt a “see no evil, ask no questions, tell no lies” approach as long as the money continues to roll in. That approach is morally bankrupt.
Since the end of 2017, I have been working with my hon. Friends the Members for Blaenau Gwent and for Gower (Tonia Antoniazzi), lawyers and independent financial advisers in order to bang the drum and get these steelworkers the justice that they deserve. In November, 18 steelworkers came to Westminster to meet the regulators and the FSCS. We were pleased that the FSCS was able to revisit some of those adviser charges. We have also had very welcome promises from the FCA to run seminars in Port Talbot. Tata has also shown a willingness to facilitate meetings with the men—all in the cause of raising awareness. That means that we can at least be optimistic that getting these men some of the justice that they deserve may be possible.
Looking forward, our main focus must be, first, to continue to raise awareness among the steelworkers who may be affected. All firms that gave advice to transfer should verifiably send out a letter written by the FCA, strongly advising them to get the advice looked at and reminding them that they may be entitled to a form of financial top-up if they come forward. We will keep pressing the FSCS and FCA to offer the level of compensation package that the men who have come forward deserve and are due. We will also focus relentlessly on ensuring that unscrupulous advisers are exposed for what they are, and that every bit of insurance that they owe is claimed.
Secondly, we must do all we can to achieve legislative change. We need to ensure that individuals are automatically enrolled in new schemes, not left to be picked off mercilessly by rogue financial advisers in an environment that is characterised by uncertainty. Thirdly, we need to ensure that regulators do their jobs. Why the advisers that I mentioned were allowed to remain on the FCA website while under investigation seriously needs looking into.
Finally, it is worth noting that this issue does not affect steelworkers alone, and that pension mis-selling pay-outs in 2018 hit a whopping £40 million—double the figure for 2017. This is a national issue across many sectors, and it is up to the FCA and the Government to stand up and stick by workers and pensioners who have been wrongly advised, and do all they can to improve regulation and legislation for future generations. I look forward to working with those in this room on all of those challenges, and I thank hon. Members for their attention.
It is a pleasure to serve under your chairmanship, Mr Howarth. I congratulate the hon. Member for Blaenau Gwent (Nick Smith) on securing this important debate. I should also declare that I have a steel plant in my own constituency, although it is not as badly affected as those in Port Talbot.
About 40,000 members of the British Steel pension scheme, the Tata Steel retirement fund, had the choice to trade their guaranteed pensions for a cash lump sum and transfer to a riskier plan as the scheme was restructured. To date, there have been about 8,000 transfers worth about £2.8 billion. Last year, as transfers from the British Steel scheme ramped up, the Financial Conduct Authority intervened to halt the activities of advice firms because of concerns that dubious advisers, incentivised by commissions and high fees, were descending on steel towns, especially Port Talbot in Wales, and enticing BSPS members to transfer their pensions.
It is extremely alarming that we now know the role advisers played in persuading steel workers to move their savings into riskier schemes. To call them cowboys would be an insult to cowboys. Financial advisers persuaded hundreds of steelworkers to give up their guaranteed pensions before the FCA halted their activity, concerned that it was mis-selling. The Work and Pensions Committee report into the BSPS described how:
“Many BSPS members were shamelessly bamboozled into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees.”
It is clear that there was widespread mis-selling to members of the BSPS. The FCA found from a sample of those members that nearly half had been given unsuitable advice or advice that was unclear.
In its findings, the review into those pensions transfers recommended that pension scheme trustees should compile a list of recommended advisers for pensions transfers. Indeed, it seems strange that that is not already the case. I know that unions such as Community and Unite have done their best, but it is a complicated set of circumstances in which people have been shamelessly robbed of their pension funds. It is right that scheme members should not be left out in the wilderness when it comes to advice on what to do with their retirement savings. There must be more clarity for scheme members, so that they are not lured in by dodgy and self-interested firms, as illustrated by the hon. Member for Aberavon (Stephen Kinnock).
The Scottish National party is keen to support steel communities across Scotland. First and foremost, workers must be put at the heart of solutions to put pension funds on a sustainable footing. The SNP Scottish Government took urgent action to ensure that steel plants were attractive to potential investors, to save workers from losing out. An investment of almost £200,000 was made by the Scottish Government to keep key workers on standby to safeguard full manufacturing capability, ensuring that plants could get back up and running as quickly as possible. The Dalzell works in my Motherwell and Wishaw constituency was the prime beneficiary of that policy, which also helped to safeguard Clydebridge works in the neighbouring constituency of Rutherglen and Hamilton West.
When the UK Government were dealing with the matter of the British Steel pension scheme, my hon. Friend the Member for Airdrie and Shotts (Neil Gray) expressed concern to the then Secretary of State for Business, Innovation and Skills that workplace pensions and incentives to save must not be undermined by any deal. In Parliament, my SNP colleagues and I have expressed solidarity with the workers at those plants, and I must thank the all-party parliamentary group on steel and metal related industries, which has done outstanding work in that regard as well. Hon. Members should rest assured that we will continue to press the UK Government to take meaningful action on issues that threaten the viability of industrial premises across the UK and their workers. This entire episode reaffirms the need for an independent pensions and savings commission to put the pensions landscape on a sustainable footing.
People have a right to know and understand their pension savings. At the moment, the UK Government’s extremely complicated pensions and savings landscape—made all the more confusing through the introduction of pension freedoms and vehicles such as lifetime ISAs—is making it more likely that consumers will make the wrong choices for their circumstances.
The BSPS members were in an extremely difficult and vulnerable situation that was exploited by greedy firms to the detriment of normal working people, who deserve the retirement that was promised to them. I can speak personally of the difficulties of realising that the pension being looked forward to will not materialise, because it happened in my husband’s case. We were not in anything like extreme circumstances, but it was still a shock to us that the future we had been promised and were looking forward to did not happen.
The SNP has long called for the establishment of an independent pensions commission to ensure that employees’ savings are protected and a more progressive approach to fairer savings is considered as we move to a period where defined benefit schemes are becoming a thing of the past. Now that the UK Government are battling with the chaos caused by the Brexit vote, the need for such an independent commission is more important than ever. This also highlights that the Government’s initiatives to improve consumer support and pensions are playing catch-up. More action must be taken urgently.
The Government have dragged their heels on the introduction of the pension dashboard, but there is absolutely no reason why this needs to be dragged out. It certainly should not be watered down. Consumers need a unified dashboard that includes their state and private pensions. The SNP was broadly supportive of the creation of a new single financial guidance and claims body that would merge independent financial and pensions advice bodies, and the Minister should update the House on the progress of the establishment of this body. Is it up and running? How can it be used to ensure that people in vulnerable circumstances, such as BSPS members, can be armed with the facts to be able to make the right choices for their retirement?
I again congratulate the hon. Members for Blaenau Gwent and for Aberavon on their outstanding work in this field. In the past, I have had dealings with the Financial Conduct Authority on pensions matters and with the financial ombudsman and have found them to be reactive, dilatory and unable and uncertain about how they can best help constituents who have been tricked and duped in terrible circumstances. The idea that men, and it is nearly always men, who worked in a hard and sometimes dangerous job should end up being duped by financial advisers—to their complete detriment—and unable to look their families in the eye and say, “I made a mistake, I am sorry, but nothing can be done”, is unacceptable to everyone in this place.
It is a pleasure to serve under your chairmanship, Mr Howarth. First, I congratulate my hon. Friend the Member for Blaenau Gwent (Nick Smith) on securing the debate. I praise my hon. Friend the Member for Aberavon (Stephen Kinnock), who has played a major role in the drive for justice for those who were cheated on their pensions, the work of the APPG and the co-operation of colleagues from the SNP. I also welcome to her first Westminster Hall debate the newly elected Member for Newport West, my hon. Friend the Member for Newport West (Ruth Jones), who will, I know, be a strong champion of the people of Newport West.
A good pension is about security and dignity in retirement. The people of Britain deserve nothing but security and dignity in retirement. People work hard, build our country and, when they come towards retirement, plan ahead for the holiday they had always dreamed of, or to help their kids to be able to buy their own home. There can be nothing more painful than to be cheated out of what they have worked for all their lives.
I sometimes say I have been around since Churchill was a boy. I remember the era back in the 1970s and 1980s, when half the population of Britain was in good final salary DB schemes. We have made some progress—for example, the battle on auto-enrolment that we fought and won when Labour was in power, and which I welcome being carried forward by this Government—but to be frank, there has been a depressing direction of travel for good final salary schemes. There have been too many scandals, but none more scandalous than that of British Steel, and that is emblematic of the problem we face with the regulation of DB pension schemes in the UK.
As my hon. Friend the Member for Blaenau Gwent stated, when a deal was struck to keep Tata afloat, members belonging to the £15 billion British Steel pension fund were given the option to shift their assured benefits to the Pension Protection Fund, to join a new retirement scheme backed by Tata, or to transfer to personal pension funds. That led to what was called a “feeding frenzy” at the site in Port Talbot, as dodgy introducers preyed on workers who were more than likely confused about the position of their pension, and who may not have had the financial support or education needed to make such an important decision. Some advice was available, but often it was simply not good enough, or it was technical and unintelligible. Those rogues, those introducers, should be utterly ashamed of themselves. They bought meals for workers in local pubs, and convinced them to transfer their pensions into totally unsuitable schemes. Some people could have lost up to six figures from their pension total.
The Financial Conduct Authority has been probing concerns that pension changes that involve 130,000 members of the Tata retirement fund appear to have been affected. A study of the 8,000 people who transferred their pension demonstrated that 58% received advice that was simply not suitable, and the Pensions Regulator calculated that in 2017, the average loss was £94,000.
I will never forget the heartbreaking story that I was told by the chief executive of the Pensions Advisory Service during the passage of the Financial Guidance and Claims Bill that introduced the Single Financial Guidance Body. The Pensions Advisory Service set up an advice facility on site, and one of the first people to come in was a big burly steelworker and shift supervisor. He sat down and burst into tears. It turned out that he had been duped by one of those introducers, and it had cost him tens of thousands of pounds. The main reason for his grief, however, was not what he had suffered and would endure for the rest of his life, but the fact that the 20 guys on his shift had all followed his lead. He said to the Pensions Advisory Service, “I’ll never, ever be able to forgive myself, because the mistake that I made has had catastrophic consequences for the people I’ve worked with for 10, 20 or 30 years”.
The British Steel case was central to our work during the Financial Guidance and Claims Bill, and I pay tribute to the work of my hon. Friends the Members for Blaenau Gwent and for Aberavon, and many other Members, particularly from Wales, who played a noble role in strengthening the legislation to crack down on the outrageous. Real progress was made. Cold calling more generally was central to the debate on the Bill, and the ban on pension cold calling was a significant step in the right direction. However, we must now go further and introduce a ban on all cold calling—there were constructive discussions about that, and it would be helpful if the Minister would update us on the Government’s thinking—and we must also ban the work of introducers. From January this year there has been an end to pension cold calling, but more needs to be done.
More generally, the introduction of the Single Financial Guidance Body is a welcome step towards greater financial education and security. It brings together the three previous bodies, which all did good work, into a new, more effective body for the next stages. Crucially, it needs to be adequately resourced, not least because of the role that it will play in the oversight of the dashboard process, but it is welcome that it has been established.
Having said that, lessons need to be learned, and significant further progress must be made. On the learning of lessons, and the need for action, the right hon. Member for Birkenhead (Frank Field), the Chair of the Work and Pensions Committee, said of the Committee’s findings earlier this year:
“British steelworkers were roundly failed by the official regulators meant to protect their life savings. They were given precious little to guide them through murky waters filled with scammers looking to snatch their pensions—scammers who had little to fear from the FCA’s grossly inadequate action at the time”,
which I think it now acknowledges. The right hon. Gentleman continued:
“Now it seems they are being sold short again on what even the FCA calls ‘rightly’ deserved compensation. The FCA has ridden to their defence and urged the FSCS to be more generous, but the FSCS is clinging to rules the FCA says needn’t apply.”
That is a powerful indictment of what happened, and a call for further action to be taken. That is essential because—I say this with some sadness—British Steel is not the only outrageous case of pension mishandling. We have seen too many other scandals, most notably BHS and Philip Green, who ought to be utterly ashamed of the way he has conducted himself over the years, and what happened with the collapse of Carillion, which I will never forget.
In my constituency, we had a first-class apprentice training centre that was operated by Carillion and that had 60 apprentices going through it at any one time. When Carillion collapsed on the Monday, they were told, “Don’t worry. You’ll be okay.” On the Tuesday, they all got called in and sent home at lunch time—a number of them in tears. One young man, who had suffered from autism but whose life had been moving forward in the right direction, was sobbing uncontrollably and saying, “What am I going to tell my mum?”
On the pensions issue, Carillion has been centre stage in our discussions, including with the Government, about the further steps that need to be taken. Some of the proposals in the DB White Paper are welcome, such as stronger criminal sanctions for directors neglecting pension schemes—although I will come on to the fact that the possibility of criminal action is there in the here and now—stronger powers for TPR, and clearer standards on scheme funding.
On the issue of further action, particularly regarding legislation, is it not vital that the Government recognise the huge risk in divesting pensions? If people are not defaulted into the new scheme that is being set up, and it is left completely open to them, there is a real risk that they will be easy prey for unscrupulous financial advisers. Should the Government not bring forward a statutory instrument that makes it the default to go into a new scheme, rather than to go into the Pension Protection Fund? That is particularly important when all the actuarial advice is that it would be best for the vast majority of those pensioners to have gone into the new scheme and that they should have just been defaulted into it. That can be done by statutory instrument.
My hon. Friend makes a powerful point. In the debate over the last 12 or 18 months, we have called that the progressive default option. There is no question but that it has enormous merits and it would be helpful if the Minister were to comment on it in his response.
The experience with Carillion pointed to more general problems that started with the Government’s lamentable non-intervention. Despite the fact that the company was getting into greater and greater difficulty, and despite repeated profit warnings, they continued to let contracts to Carillion. The regulators were aware of the risks at a relatively early stage, but they did not use the full extent of their powers to avoid unnecessary burdens on business. I kid you not. I quote from what was said at the time.
The board, which failed in its duties to workers and pension scheme members, continued to pay out large salaries, bonuses and dividends, but did not pay into the pension deficit. The trustees did not alert regulators to the extent of the problems early enough. Asset managers continued voting through large pay packages despite profit warnings, and the auditors did not spot the signs of trouble early enough. There is a raft of problems associated with the scandals that have befallen too many workers in our economy. The lessons from Carillion in terms of the need for action more generally are powerful indeed.
At the next stage it is vital that the regulators act to make sure that such events never happen again. They need to become more people-focused, ensuring that workers’ pensions are protected at all costs. Rogues in the industry must be sought out and punished, ensuring that they never work in the industry again, and the law needs to be strengthened. To that end, there have been constructive discussions with the Government on presenting a Bill as soon as possible to introduce the stronger powers contained in the DB White Paper to go after rogues. Perhaps the Minister will comment on where that legislation is. It is important for two other reasons, including the introduction of the pensions dashboard—for example, the compulsion on providers to provide the necessary information to the dashboard—and the collective defined contribution pension scheme that has been agreed between Royal Mail and the Communication Workers Union.
There are welcome measures on pensions that can and should be taken where there is a degree of consensus, even if we argue that the Government should go significantly further. The sooner they are introduced into legislation, the better.
In conclusion, this is little comfort to the workers of British Steel or those in Carillion, but the tragedy that befell them was at the centre of the drive for changing and strengthening the law last year. It is at least something of a legacy, even if it is cold comfort to them. At the heart of it were MPs such as my hon. Friends the Members for Blaenau Gwent and for Aberavon, who played a major role in highlighting the scandal and demanding that action be taken.
At the next stages, I stress again that it is important that lessons are learnt by all those I have referred to and that the law is strengthened. I will finish by referring to something that my hon. Friend the Member for Blaenau Gwent said, and he was absolutely right. Is it necessary to change the law in the ways that I have argued for? Yes, without hesitation, but there are powers that exist now in criminal law, and those powers should be used. I know the workers of Port Talbot would say that those evil men and women who cheated them on their pensions need to be investigated, tracked down and put in the dock. An unmistakable message must be sent: if you rob workers of their pension scheme, you are an utter disgrace and, will end up in the dock, and, in extreme cases, in prison.
It is a pleasure to serve under your chairmanship this morning, Mr Howarth. I thank the hon. Member for Blaenau Gwent (Nick Smith) for securing this important debate. I know he has engaged extensively and constructively with the Financial Conduct Authority on these matters over the past year. I was pleased to meet him in February to discuss how we can avoid a repeat of the unfortunate circumstances that occurred in the British Steel pensions scheme case. I am aware of the extensive work he has undertaken with the hon. Member for Aberavon (Stephen Kinnock) and others from south Wales, and I know that the FCA has valued immensely that interaction to try to improve communications and other aspects raised in the debate this morning.
Many issues have been raised in the debate, and I will seek to respond to them all—particularly the importance of a well-functioning financial advice market. I have listened carefully to all those who have made observations about the aspects of that that are not functioning well.
I will refer to the lessons that have been learned specifically in the British Steel pensions case; the actions the FCA has taken to address unsuitable pensions transfer advice; the protections in place for consumers; and the issue of so-called phoenix firms—an outrageous situation where individuals seek to leave behind responsibility for a previous, failed enterprise, recreate a new enterprise and therefore absolve themselves of responsibility.
I am here as the Minister responsible for financial services. I note the questions that have been raised by the hon. Member for Birmingham, Erdington (Jack Dromey) concerning the status and other aspects of the pensions Bill. I was in front of the Work and Pensions Committee last week with my colleague, the Minister for Pensions, so I have some observations on that, but he has lead responsibility in that area, so I shall seek to secure a response from him.
As the Minister responsible for financial services, I am committed to ensuring that a well-functioning financial advice market exists to support people to make the right decisions for them and their families. In 2015, as has been mentioned, the Treasury and the FCA launched the financial advice market review, with the goal of improving the accessibility and affordability of financial advice. The Government and the FCA have now implemented all 28 recommendations from that review and will be reviewing the advice market again over 2019 to monitor progress and report back next year.
The Government have also made financial advice mandatory for people considering a defined-benefit pension transfer where the value of the pension is over £30,000. That threshold is purposely low, given the dire consequences of taking poor advice and making unwise decisions—as has been said in relation to a number of cases this morning. That is to ensure that people consider the fact that they may lose guaranteed income in retirement and are aware of all the options available before they make such a complex decision.
Turning to British Steel, although most financial advisers offer sound advice, unfortunately there are cases where the advice people receive is not right for them. The British Steel case was one such instance and resulted from a unique set of complex circumstances. A minority of advisers were responsible for giving unsuitable advice, which resulted in losses for scheme members. The restructure of the British Steel pension scheme occurred at a time when there was considerable concern over the future of Tata Steel, and members were understandably worried about whether they were about to lose their jobs and pensions. Several public bodies were involved in supporting scheme members to decide what to do with their British Steel pension, and it would be helpful to outline their different roles, because that will bring clarity to where the issues lie and how we can address them.
The Pensions Regulator is responsible for negotiating and agreeing arrangements where an employer is unable to continue to support a defined-benefit scheme, as was the case for Tata Steel and the British Steel pension scheme. That includes guidance and oversight of the trustees and scheme administrators. As such, the Pensions Regulator was also responsible for the options available to BSPS members, the communications sent by the trustees and the deadlines for decisions to be made.
The FCA is responsible for the regulation of the financial advice market. Financial advice firms must be authorised by the FCA before they are permitted to provide advice, including on pension transfers, and advisers are required to provide financial advice that is suitable for the individual’s personal circumstances.
The Pensions Advisory Service was an independent service offering free-to-consumer guidance on pension matters. As has been mentioned, it has recently been merged with Pension Wise and the Money Advice Service to create a new single financial guidance body, which is now known as the Money and Pensions Service. The hon. Member for Birmingham, Erdington asked from the Opposition Front Bench about the status of that body. The chief executive is now in place, and work is going on in this financial year to set up the processes for bringing those three entities together. There will be a series of announcements over the coming months about their intentions, but the body will operationalise in the course of the coming financial year.
As to the lessons learned from the experience in south Wales with the British Steel scheme, the independent Rookes review, which considered the communication exercise that supported members of British Steel to take decisions on their pension, reported in January. It noted that there are important lessons for organisations to learn to prevent such a case from happening again. There are, I think, 18 recommendations, and they include earlier intervention and intelligence sharing between the regulators and the Money and Pensions Service; improved support for members considering cash transfers out of defined-benefit schemes; improved guidance for trustees facing restructuring and other major changes; and improved message content clarity and channels.
The Pensions Regulator, the Financial Conduct Authority and the Money and Pensions Service have publicly committed to addressing the review’s remaining recommendations. They have agreed a joint protocol to work together to ensure that consumers are appropriately protected. It includes ensuring that support and communications are in place for members of defined-benefit pension schemes, ahead of any restructures and consultations—something manifestly different from what happened in the regrettable case that we are considering. Another aim of the protocol is that there should be better co-ordination of the involvement of different public bodies through early intervention, expedited approval processes and improved information sharing. The bodies have also developed branded written materials for trustees, to ensure that there are better communications with pension scheme members, including letters to alert them to the risks of transferring out of DB pension schemes, and the giving of practical information.
I will now talk about action on unsuitable pensions transfer advice, because the British Steel case has also raised many questions about quality.
The Minister has set out some of the structural and institutional issues and the lessons to be learned, but does he agree that when 8,000 members transfer out there is clearly a problem that needs to be addressed at source? Flagging up risks is all very well, but this is a case of shutting the door after the horse has bolted. We need a system that prevents such mass migration out, because once those kinds of numbers are involved it is highly likely that people will be going against actuarial advice that is in their best interests.
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.
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.
That is helpful, but in the case of British Steel, I think it would send absolutely the right message to the workers concerned if the Minister said today that a sense of urgency is needed on the part of the FCA and the South Wales police about investigating potential criminal wrongdoing and taking action. The workers back at the plant would welcome that.
I am happy to respond to that intervention by saying that it is absolutely imperative that the FCA works with all bodies to hold those individuals to account and to take the appropriate action in the light of the evidence presented to it. This is urgent; the individuals who have suffered this experience expect that of the FCA, and I believe the FCA is keenly aware of that.
The hon. Member for Blaenau Gwent talked about the regional presence of the FCA. It has more than 3,000 employees and runs an annual programme of regional supervisory workshops under its “Live and local” banner, in which it educates firms and gathers intelligence from across the country. That has included recent workshops on DB pension transfers. Although the FCA does not have a series of regional offices, there is a clear expectation on the part of the Government and the FCA itself that it will go out into communities across the country, to ensure it has a presence among the 35,000 IFAs that operate.
The regulator is also undertaking further work on the pensions transfer advice market. The FCA is analysing responses to a recent data request from firms that undertake pensions transfer advice and is planning a programme of work, which is likely to include further engagement with stakeholders, targeted education for firms involved in providing pension transfer advice, and assessment of those firms significantly involved in the provision of DB transfer advice. The FCA has already announced a requirement for all pension transfer specialists to obtain the same qualifications as fully regulated investment advisers, alongside their existing qualifications, by October 2020. In relation to the BSPS, the FCA intervened to stop 11 firms from providing pensions transfer advice, and several firms are still under investigation.
It is important to ensure that consumers are protected from poor-quality and unsuitable advice, and there are proper mechanisms for redress when they receive poor advice. The first port of call for consumers to seek compensation is to approach the firm itself. If they cannot resolve the issue, consumers can take their complaint to the Financial Ombudsman Service. The FOS is a free, independent service that provides an alternative to the courts. The maximum award it can recommend was increased at the beginning of this month from £150,000 to £350,000 per individual. If firms go into liquidation and cannot provide compensation to individuals, a second tier of protection is open through the financial services compensation scheme. The FSCS is mainly funded by an annual levy on the financial services industry. Since its founding, the FSCS has helped millions of people and paid billions of pounds in compensation.
It is important to note that in the British Steel case, only a very small minority of former steelworkers who have taken their claims through the FOS and the FSCS have not been fully compensated. That group were all clients of one firm, and the Government’s decision to make financial advice mandatory for those seeking to transfer their DB pension has therefore guaranteed a crucial layer of consumer protection to those individuals.
“Phoenixing”—firms or individuals seeking to avoid liabilities arising from poor investment advice by re-emerging as a different legal entity—can leave consumers and taxpayers out of pocket and tarnish the reputation of the industry. The FCA has a range of tools to identify and act against firms or individuals who try to avoid responsibility in that way. Those seeking to liquidate firms must provide information about outstanding complaints, and the assets of collapsed firms cannot be sold on or passed back to former directors without the prior consent of the regulator. The FCA has already used those powers to prevent several individuals and businesses from avoiding their liabilities, and other cases are under investigation. This has caused some individuals to withdraw their applications, knowing full well that they will not get through. Although I acknowledge that this will not give absolute comfort to those who have suffered, I believe that we now have in place a regime that will prevent the practice in future.
On the issue of compensation, phoenixing and rogue financial advisers’ ability to just shut up shop and walk away, surely there is also a question of insurance. In our recent meeting with the FCA, which I found absolutely extraordinary, it was made clear to us that there appears to be no mandatory level of insurance that financial advisers must take out so that they can be held to account and insurance pay-outs can be made. My understanding is that, as soon as these advisers see the writing on the wall and know that people will come after them for compensation, they shut down, and there is no backstop—perhaps safety net is a better term—so that people who have been ripped off can go after them through an insurance process. Does not that extraordinary situation require a policy and legislative shift so that the FCA has a chance of doing its job in this area?
I have been trying to find the note that one of my officials kindly sent me on the quantum of insurance. My understanding is that FCA-authorised and regulated firms must have insurance in place; if they do not, the FCA has it in its armoury to de-authorise. I listened carefully to the hon. Gentleman, and his point seemed to be on the amount of that insurance. I am happy to take that matter away and consider it. On the practice of phoenixing, I am given to understand that the FCA has done a significant amount of work in that area. It launched a programme of work in April 2018 to strengthen authorisations, and I have given some of the details. I do not want to waffle further on this point, but I will give consideration to the amount and level of insurance required. The hon. Gentleman has discussed the matter with the FCA; I will do so as well and write to him. If it is not fit for purpose, it is not fit.
I thank the hon. Member for Blaenau Gwent for bringing to the House this debate on a very important topic. I was pleased to hear that he is committed to supporting the communications work with the FCA to raise awareness among former BSPS members of their rights to complain and to seek justice. The Government, regulators and other organisations are strongly committed to monitoring the market for financial advice and defined-benefit pension schemes, and to taking decisive action to ensure that these events cannot be repeated. I recognise that Ministers often say that at this point, but I have listened sincerely and carefully to the points that have been raised.
A lot can be done as a consequence of the excellent work of the hon. Gentleman and his colleagues, and through my interaction with the FCA. I accept that there have been some differences of opinion in the Chamber this morning regarding the amount that can be done by regulatory intervention and legislative action. However, I will do all I can to ensure that we exhaust reasonable opportunities for the FCA to tighten up in all these areas. The example given by the hon. Member for Birmingham, Erdington of an individual who inadvertently, unwittingly and tragically led his 20 colleagues to make certain decisions, and the multiplier effect of those, was heartbreaking, and one that the Government need to respond to. I thank Members for the opportunity to respond to this morning’s debate.
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.
That this House has considered pension transfers and the British Steel pension scheme.