By Fiona Tait, Technical Director, Intelligent Pensions
This has been largely overshadowed by the well-justified controversy around those members who took a cash transfer instead, however if we bear in mind that the focus of the trustees at the time was to help members with the transition from the British Steel Pension Scheme (BSPS) scheme, which was headed for the PPF, it’s not a bad result.
So, what did go wrong?
Communications were inadequate and left members with unanswered questions.
The trustees sent out several communications, including newsletters and a “Time to Choose” member pack laying out the options. Most members found these very helpful however there were periods between these communications where members felt they had not been kept up to date. The review was also critical of the fact that the trustees chose not to utilise social media, especially in view of the short timescales available. Hindsight shows that this decision was particularly unfortunate given members’ use of Facebook groups which could have been usefully exploited. In the absence of regular information distrust and misinformation was allowed to spread on the grapevine.
Local financial advisers reported that they could not cope with the number of requests for advice and many members reported that they had no idea of how to go about finding a firm they could trust. Deficiencies in both unbiased and the FCA website made it difficult even for those who did try to shop around and left them vulnerable to the proactive tactics of “unscrupulous” advisers and introducers.
The level of cash transfer requests was unprecedented and unexpected.
This was always a possibility but the trustees didn’t anticipate it, despite some obvious signs. Transfers from defined benefit (DB) to defined contribution (DC) pensions have been at an all-time high since the introduction of pension freedoms in 2015 and there was no reason to believe that their members would be any different in their desire for more flexibility. Indeed there were strong reasons why this would have been on their minds.
In 2006 the BSPS introduced a 5% actuarial reduction in benefits for each year they were taken prior to the NRA of 65. The review notes that this was particularly relevant to steelworkers who had started their employment at age 15 or 16 and whose jobs involved a considerable amount of manual labour. Restricting early retirement options had already generated some distrust among workers which was easily played on by those with vested interests.
Members were forced to make very difficult decisions in a very short time.
The issue that cemented it all was the lack of actual time in the “Time to Choose”. Without the pressure cooker of the 3month deadline for members to leave BSPS before it entered the PPF, members may have been able to take the time to study their options, to speak to TPAS or to find themselves a reputable financial adviser.
Anyone active in pension transfers knows how difficult it is to implement a DB to DC transfer and this would have been, quite legitimately, conveyed to members making it more likely that they would rush into a decision which they might later regret.
So what next?
The exact conditions of BSPS are unlikely to occur again – not many employers taking over a scheme under threat of insolvency will offer a replacement to the PPF - and if they do hopefully lessons will have been learned about timescales and communications. But the drivers behind many transfer requests are still relevant and many of the issues raised here apply not just at scheme level but to individuals as well.
The report makes a number of recommendations, many of which centre on earlier action and more guidance. The Pensions Regulator (tPR) is good at this – there is a lot of guidance on their website, although the review suggests it should focus on “what good looks like” rather than minimal compliance. If they could replicate the sort of support they provided during the roll out of automatic enrolment, with checklists and timescales, that would do nicely. Even better if they could get the long-promised transfer template out.
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