British Steel: Report Urges Regulators To Learn Lessons From Restructuring

A review of the restructuring of the British Steel Pension Scheme (BSPS) has recommended the UK regulators update rules and guidance regarding member communications.

In a report published today, Caroline Rookes – former director of private pensions at the Department for Work and Pensions (DWP) – called for trustee boards to be able to set up a panel of approved financial advisers to help members understand their options during scheme restructuring events.

Rookes was tasked last year with investigating the lead up to and fallout from the BSPS changes, which were completed last year.

In 2017, BSPS’ sponsoring employer Tata Steel and TPR agreed to a regulatory apportionment arrangement (RAA), allowing the scheme to be legally separated from the employer and transferred to the Pension Protection Fund (PPF).

A new scheme, BSPS2, was set up with the aim of offering the majority of members better benefits than the PPF. Members were then asked to choose between the two options, with 97,000 of 122,000 pension scheme members opted for the new fund.

During the restructuring, many scheme members were targeted by unregulated “introducers” attempting to persuade them to transfer out of their guaranteed defined benefit plans into riskier – and often more expensive – pension products.

The Financial Conduct Authority (FCA) has subsequently barred a number of financial advice firms from providing advice on pension transfers.

Rookes called for the FCA to review its directory of approved advisers “to ensure they are fit for purpose”.

Members should be directed to the UK’s new government-backed financial guidance body – currently known as the SFGB – for guidance and help understanding their options, she said.

The Pensions Regulator (TPR) “should explore if there is a way to allow trustees or the trade unions to identify a panel of financial advice firms that members can select from”, Rookes added.

Communication breakdown

In the report, Rookes encouraged TPR to take the lead on improving member communications guidance.

However, Rookes said in her report that a lack of communication prior to the RAA announcement had led to “suspicion, concern and uncertainty” among members.

Additionally, once the BSPS trustees began their ‘Time to Choose’ communications exercise, the short timeframe for responding to the options resulted in a huge increase in calls and information requests to the pension fund’s management office.

Despite calling in temporary staff, Rookes said the office “entered a downward spiral” with a growing backlog of transfer requests and other correspondence.

“The volume and complexity of the work of the office was unprecedented,” Rookes reported.

Recommendations

TPR should consider placing a “more explicit” duty on trustees to ensure communications are effective, Rookes said.

“All restructurings will be slightly different and therefore require bespoke communications,” she stated. “It should be possible to look at some standard wording for areas such as the risks on cash transfers that can be tried and tested before use.

“In addition a good communications guide for trustees would be a helpful starting point, highlighting the need to develop a communications strategy.”

She also urged trustees to consider digital communication strategies in addition to physical paperwork to engage more people. The BSPS trustees ruled out setting up support pages on Facebook as they believed that “many members would not be users of such channels”.

Regulatory and public bodies “should check their websites for consistency of messaging, cross referrals and ease of use,” Rookes added.

The full report can be accessed here.