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MPs have called for a review of the UK Financial Conduct Authority’s monitoring of the pension transfer market due to concerns that thousands of cases of mis-selling have been undetected.
The House of Commons’ public accounts committee made the recommendation in a highly critical report on the regulator’s role in a major pension mis-selling scandal that left thousands of steelworkers with huge shortfalls in their retirement income.
The case involved about 7,800 members of the British Steel Pension Scheme who in 2017 and 2018 were advised to swap secure “final salary” pensions for cash lump sums.
The group of MPs said on Thursday that the steelworkers’ case pointed to wider problems within the FCA’s regulation of financial advice, such as the authorisation and oversight of small firms, access to data and intelligence to identify problems, and the use of enforcement powers.
The committee recommended that the regulator review its enforcement powers and whether it had fully detected the level of defined benefit pension transfer mis-selling in the wider market.
The MPs concluded that the FCA had “failed” to protect BSPS members from “unscrupulous financial advisers” who were incentivised by fees and “regulation” to provide unsuitable advice.
Due to bad advice, many steelworkers’ secure pensions were shifted to riskier or high charging personal pensions. Financial losses for steelworkers affected averaged £82,000 but were as high as £489,000, found the inquiry.
“The regulatory system left British Steel Pension Scheme members open to being manipulated by unscrupulous financial advisers who personally profited from giving bad advice,” the report said.
“In the BSPS case at least 47 per cent of transfer advice provided to members was unsuitable.”
Giving evidence to the committee’s inquiry, former FCA chief and current Bank of England governor Andrew Bailey said his predecessor at the regulator had raised concerns with the Treasury about the speed government was pushing through new pension rules, which made transfers more attractive, in 2015.
But the committee concluded that despite being aware of potential risks to consumers from the “pension freedom” reforms, the FCA “failed to take preventive action” to protect steelworkers transferred out in 2017-2018.
“Andrew Bailey stressed to the PAC that these [transfers] were the ‘most complicated financial decisions a person could make in their lifetime’,” said Meg Hillier, chair of the cross-party committee.
“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.”
Since the reforms, announced in 2014 and implemented a year later, hundreds of thousands of consumers have been advised to transfer their defined benefit pensions to riskier arrangements. FCA analysis has found that about 17 per cent of transfer advice in the wider market was unsuitable.
“Based on the level of unsuitability found, thousands more consumers are likely to have been mis-sold DB pension transfer advice from 2015-2021 and are due compensation,” said the committee.
The FCA said: “The circumstances around British Steel Pension Scheme transfers were exceptional, and we know that many members lost out due to poor advice. We will carefully consider the recommendations of the report and respond to the committee.”
The Bank of England declined to comment on behalf of Bailey.
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