*** January 2018 update ***
The Financial Conduct Authority have now started to restrict a number of advisers who have been advising on BSPS and of course many of them transferring benefits. It seems that one firm has been ‘on the radar’ since 2016.
From a pension advisory perspective, I find it disturbing that it has taken so long. It’s also fairly clear that the quality of the advice provided by at least one these firms is in question and it’s clear that they had in a place a marketing network within British Steel in order to peddle their poor advice.
Couple of things spring to mind. How with modern regulation has this been allowed to happen?
The trustees of the British Steel pension scheme have questions to answer, the regulatory system has failed big time and TATA should certainly have put some systems in place.
It was down to the likes of Frank Field and a number of industry advisers, to make sure many of these members got the guidance they wanted, and it’s obvious that big chunks of the financial advisory community still haven’t learned the lessons of the past – they are still making dodgy recommendations and offering poor advice.
Sadly, it’s still buyer beware with pensions and pension planning. Fortunately, if you want the truth then I can help you.
I had a rather disturbing call this morning from a member of the British Steel scheme; he told me that he felt under a great deal of pressure (and uncertain pressure at that) to make a decision between:-
- Moving to the British Steel 2 scheme
- Moving to the Pension Protection scheme
- Transferring his pension to another provider and giving up his guarantee.
Problem is what should he do?
Opinion – it would seem that the British Steel scheme is/has not able to produce correct statements and information about your individual benefits under the scheme – therefore any adviser providing transfer advice is likely to find that advice flawed. YOU a British Steel Pension scheme member will need to stop, consider, understand and then act.
Couple of things to note here.
The main scheme details are here British Steel Pension
Just to be clear. If you are a member of the old scheme (closed March 2017) you can still
- Move your pension to a new employer
- Draw on benefits before your normal retirement date
- Draw you pension earlier.
All of this information is on this web page British Steel Pension Members
But there are some options, you can (and have to choose) linked information here
If he moves to the pension protection scheme (PPF)…
The new scheme’s benefits are the same as the current scheme, except for offering lower yearly increases. For certain members in certain situations, the PPF offers higher benefits than the current scheme, and so higher than the new scheme. For example, if when you start taking your pension you swap some of your pension income for tax-free cash, the PPF is more generous when it works out how much cash you get. The new scheme has to be affordable, and it would have been too expensive to give all members better benefits than the PPF.
Q: Could Pension Protection Fund benefits change in future?
They could, though the benefits that the PPF provides are set out in legislation. It is possible that the government could change this legislation. For example, quite recently the amount of the cap that applies to certain members’ PPF benefits was increased for members with more than 20 years’ pensionable service.
The PPF is confident that it is currently in a strong financial position. If it became less strong in the future, there would be a number of options available to the PPF. One option would be to increase the levy that the PPF collects each year from the schemes it protects. The PPF legislation does allow the PPF or the Government to change member benefits – for example, it could reduce the maximum yearly increases it provides. However, reducing benefits would only be considered as an absolute last resort.
In that short summary above you’ll note that under both a transfer to PPF and a transfer to BS2 you will still benefit from a guaranteed pension at retirement, but the basis for the calculations are different.
In order to determine what is going to be the best option for you there needs to be simple comparison done.
Both schemes offer different levels of tax free cash, different widows and spouses pensions and different levels of future increases.
It’s these that are the main differences.
Some of you with benefits under the British Steel main pension may have been approached by advisers offering you an option to transfer away, and indeed may have been offered ‘telephone number’ figures of what you could achieve.
For me understanding the way these things work there are a couple of questions.
- Can you afford the charges that come with these transferred plans. At least 2.5% per year on average – that 25% (twenty five percent) of your fund every ten (10) years.
- Do you fully understand that you will give up valuable guarantee of benefits once you move.
- Investment risk will be borne solely by you, your adviser or the transferring company will not accept any liability for investment market collapses or non performance of any pension fund (and most don’t perform that well).
- Charges will be levied as and when you want to make changes to your pension – double charging.
They key thing about your present predicament is this.
Should you move from British Steel – to BS2 or the PPF?
You can only decide that once you have worked through the comparison options. Moving to another provider in the form of a pension transfer to a personal pension or a self invested personal pension means you will be paying very high charges and lose your valuable guarantees.
It would seem that many so called advisers are targeting British Steel employee’s and offering advice to transfer. I don’t see how that can be done correctly when, based on it’s own admission the British Steel Pension trustees have admitted to not being able to produce the correct figures for many staff.
Your decision to move your pensions is a big one, don’t fall for the hype from the industry predators – frankly I am appalled that any adviser in this day and age is able to make a recommendation to switch on such limited and seemingly false information.
Be very careful, if you have been approached by someone it’s likely you’ve been sold something you don’t want, don’t understand but will have paid dearly for it.
Charges of £9,000 +£7500 ever year (based on a pot of £300k) are not unusual.
Get in touch if you are not sure. Use this form.
Meanwhile please read the links below, some of it’s a bit technical but you’ll soon get a feel.
From Henry Tapper
Note on investment risk.
On moving from a defined benefit scheme to an defined contribution scheme (an invested pot) you’ll need to remember that the investment markets are at all time highs and to be fully invested now you will taking substantially more investment risk than five or even ten years ago.
I doubt your pension transfer adviser has told you that.