Trustees not responsible for bad IFA transfer work, scheme professionals say

Independent financial adviser Alastair Rush, who spearheaded an initiative by advisers and others providing pro bono help to Port Talbot steelworkers affected by mis-sold transfer advice, known as Operation Chive, pressed the Financial Conduct Authority on the proposals on Tuesday, according to the Financial Times' Josephine Cumbo.

In a letter sent last week to the FCA, the Pensions Regulator, Work and Pensions Committee chair Frank Field, along with a group of Welsh MPs, Mr Rush called for BSPS trustees to make payments to those who transferred out erroneously.

The money, he said, could come from the £550m cash injection secured from BSPS sponsor Tata Steel UK as a condition of the scheme’s regulated apportionment arrangement.

Where members go through a regulated process… then it seems a bit unfair to say that it’s trustees who pick up the cost of that if it goes wrong

Stephen Scholefield, Pinsent Masons

Of around 42,000 deferred members in the BSPS, around 9,000 opted to transfer out, with Mr Rush estimating that almost every employee of Tata in south Wales chose to leave.

He argued that the departure of these members put the scheme in a better position, with its £500m and equity stake in the sponsor shared among less members.

“We could have had the situation, theoretically, where everyone left and the scheme had half a billion quid in it,” he told Pensions Expert.

Trustees have a legal duty to achieve the best outcome for their members as long as they choose to remain in the scheme, making the award of discretionary payments to non-members tricky.

But Mr Rush said the scheme had been “underprepared” for the volume of transfer requests it would receive, and pointed in his letter to the recent Rookes report into its communications efforts.

While that report did not blame the trustees or any other party, it did ask the regulator to consider how boards could be encouraged to do more than the bare minimum.

Institutional advisers hit back

However, trustee advisers have been less keen on the idea, particularly due to the precedent it could set for blaming trustees, rather than advisers and the regulation surrounding them, for bad outcomes.

“Trustees obviously have to run the scheme properly and they have to ensure that the information they give to members is fair,” said Stephen Scholefield, partner at law firm Pinsent Masons.

“But ultimately where members go through a regulated process… then it seems a bit unfair to say that it’s trustees who pick up the cost of that if it goes wrong.”

For regulators to force BSPS trustees to make any payment to former members – at the expense of those still in the scheme – is likely to be seen as retrospective legislation, which Mr Scholefield said is not permitted in British law where it makes an individual worse off.

He said: “When you’re gone you’re gone. It isn’t that you can just transfer out and have a second bite at the cherry. The starting point should be to look at whoever gave that advice to you.”

Plans unlikely to convince regulators

As a result, some commentators doubt whether the proposal will gain much traction, despite positive noises from Welsh MPs.

“I don’t think any regulator’s going to ask trustees to pay anything,” said David Brooks, technical director at employee benefits consultancy Broadstone.

However, Mr Brooks saw the call as a sign of increasing pressure on trustees to guide members through the advice process.

“It will be best practice that they have some friendly IFA or IFAs to direct members to,” he said. Mr Brooks added that guidance from regulators on procurement methods would help schemes achieve the best for their members, while also ensuring they could not be liable for any resulting bad advice.

Mr Rush said instead of picking an adviser for members, he would like to see schemes and employers promoting access to impartial guidance such as that from the Pensions Advisory Service, now part of the Single Financial Guidance Body.

Trustees show “hesitancy” to go the extra mile for members on transfers in some cases because they fear the consequences of members choosing the wrong option, according to Mr Brooks, but he stressed the importance of helping members through this difficult choice.

“It’s a nightmare for members; I really feel sorry for them,” he said.