MPs have called for a review of the oversight of the pension transfer market by the UK’s Financial Conduct Authority, fearing thousands of cases of mis-selling have been detected.
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 has left thousands of steelworkers with huge financial losses. earn in their retirement income.
The case involved around 7,800 members of the British Steel Pension Scheme who, in 2017 and 2018, were asked to exchange secured ‘end-of-career pay’ pensions for lump sum cash.
The group of MPs said on Thursday that the steelworkers’ case highlights wider issues within the FCA’s financial advice regulations, such as the licensing and oversight of small businesses, access to data and information to identify problems and the use of enforcement powers.
The committee recommended that the regulator reconsider its enforcement powers and whether it had fully detected the level of mis-selling of defined-benefit pension transfers in the wider market.
MPs concluded that the FCA had ‘failed’ to protect BSPS members from ‘unscrupulous financial advisers’ who were incentivized by fees and ‘regulations’ to provide inappropriate advice.
Due to bad advice, the secure pensions of many steelworkers have been replaced by riskier or more expensive personal pensions. The financial losses of the affected steelworkers averaged £82,000 but reached £489,000, the inquest found.
“The regulatory system has left members of the British Steel Pension Scheme open to manipulation by unscrupulous financial advisers who have personally profited from bad advice,” the report said.
“In the case of the BSPS, at least 47% of the transfer advice provided to members was inappropriate.”
Testifying to the committee’s investigation, 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 with which the government pushed through new pension rules, which made transfers more attractive, in 2015.
But the committee concluded that despite being aware of the potential risks to consumers from the ‘freedom of pensions’ reforms, the FCA ‘failed to take preventive measures’ to protect steelworkers transferred in 2017-18 .
“Andrew Bailey pointed out to the PAC that these [transfers] were “the most complicated financial decisions a person can make in their lifetime,” said Meg Hillier, chair of the all-party committee.
“So how is it that even with a two-year delay, the organization was unprepared: first for the systematic mis-selling that stole thousands from their savings and retirement plans, and then to provide an appeals process that is difficult for those affected to navigate.”
Since the reforms, announced in 2014 and implemented a year later, hundreds of thousands of consumers have been asked to shift their defined-benefit pensions to riskier plans. FCA’s analysis found that around 17% of transfer advice in the wider market was unsuitable.
“Based on the level of mismatch found, thousands of additional consumers are likely to have been mis-sold to DB pension transfer advice from 2015 to 2021 and need to be compensated,” the committee said.
The FCA said: “The circumstances surrounding the British Steel Pension Scheme transfers were exceptional, and we know many members lost out due to bad advice. We will carefully review the report’s recommendations and respond to the committee. »
The Bank of England declined to comment on Bailey’s behalf.