FCA launches redress scheme after British Steel pensions scandal

More than 1,000 people will receive an average payout of £45,000 in compensation under a redress scheme by the Financial Conduct Authority (FCA).

The scandal dates back to 2016 and 2018 as British Steel’s then-owner Tata Steel was restructuring after going through financial difficulties.

Members were told by "unscrupulous financial advisors" to transfer defined retirement benefits to a riskier schemes, which resulted in huge losses.

A report into the scandal found that advisors were incentivised by existing fee structures and regulation to provide unsuitable advice and pocketing huge fees.

At the time, members had to decide how they would manage their pension benefits, with nearly 8,000 deciding on moving pensions elsewhere.

Around 54% of transfer recommendations were unsuitable, the FCA said. The steelworkers who transferred money to riskier arrangements lost an average of £82,600. 

The report said the FCA failed to protect members against unsuitable advice.

On Monday, the City watchdog launched plans for the scheme to compensate those affected.

The regulator will also temporarily ban the firms who gave the advice from paying shareholders dividends or giving bonuses to directors to ensure they do not shift money out of the business before compensation is paid. 

FCA directors stressed it would be “watching advisers closely” throughout the redress process.

“Far too many steelworkers were let down by their advisers,” said Therese Chambers, the FCA’s director of consumer investments.

“The scale of unsuitable advice that we have identified was exceptionally high, almost 50%. There are firms who took advantage of the situation and enriched themselves. There are firms who have not done the right thing by steelworkers who have complained and there are firms who are still seeking to avoid their accountability.

“It is against that context that we have decided to proceed with a consumer redress scheme so that steelworkers can get what they worked for.”

The FCA has faced criticism for allowing the poor advice to be given to members under its watch, with MPs have accusing the regulator of being “asleep at the wheel”.

Blaenau Gwent MP Nick Smith, who is lead member on the committee’s inquiry said at the time: "Steelworker pensioners came to me four years ago telling me they had been ripped off.

"This report shows how badly they were treated and where the FCA failed to report them in their hour of need.

"The FCA failed to get a grip on this scandal at the outset, was slow to respond and not nearly enough has been done to hold those responsible to account."