The BSPS saga: the redress scheme two years later

The Financial Conduct Authority (FCA) has reported that fewer than one third of former British Steel Pension Scheme (BSPS) members deemed to have received unsuitable advice to transfer out have actually received redress following the introduction of the redress scheme under s.404 of FSMA. Of the £49m the FCA anticipated would be paid out through the scheme (this of itself being a revised figure), only £8.7m has so far been paid out to affected members.

The BSPS saga, reported on at length, began in earnest in 2016 and ultimately resulted in 7,700 members transferring out of the BSPS, giving up guaranteed retirement benefits (worth £2.8bn in total) after obtaining advice. 

The FCA initially encouraged former BSPS members to raise complaints with their advisor following which they could refer to the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS) should the advisor be insolvent. 

Despite the publicity a relatively small number of members raised complaints and, following a consultation, the FCA announced a redress scheme under section 404 of the Financial Services and Markets Act 2000 towards the end of 2022. 

Under this scheme, advisors were required (by a deadline set by the FCA) to write to their BSPS clients and inform them they would be reviewing the suitability of the advice given. If the member disagreed with the advisor's conclusion, they could contact the FCA who had the power to arrange for the FOS to independently review the advice. 

The FCA anticipated that redress would come to approximately £49m, with advisors paying £33.6m of this and the remaining £15.4m coming from the FSCS. However, the calculation for determining redress is closely tied to the value of gilts, which fell drastically following Liz Truss' mini-budget and the announcement of various tax cuts at the end of 2022. As such, redress payments have been significantly lower in the years since 2022.

In a report published in July 2024, the FCA has reported that approximately £100m in redress has now been offered to at least 1,870 former BSPS members. However, only £8.7m of this was offered under the redress scheme. The FCA has further revealed that the percentage of cases where advice was found to be unsuitable under the redress scheme, but where no redress was ultimately payable, is 70.1%, which the FCA attributes to "changing economic conditions". 

This comes as a result of the cost of funding guaranteed retirement income through an annuity having fallen significantly in the past two years, meaning a smaller pot is needed now to buy the same level of income that a much larger pot would have provided in, say, 2019. In some instances, the amount needed to put that member in the position they would have been had they not transferred out of the DB pension, is lower, and in some cases is zero, as the transferred funds are currently able to purchase a higher level of benefits than were available from BSPS.

To put this in context, prior to the introduction of the redress scheme, claims to the FOS, FSCS and arising out of FCA intervention came to around 3,000 and led to redress of approximately £97.4m being payable to 1,510 former members. Following the introduction of the redress scheme just under 3,000 cases have been considered with approximately £8.7m in pay outs to 360 members (with a number of the balance of the 3,000 cases presumably showing no loss). These numbers reveal that the redress scheme has seen significantly less redress paid than anticipated. In the final rules for the redress scheme, the FCA themselves stated (under the heading 'measuring success' no less) that one of the proposed outcomes of the scheme was that £49 million would be paid in redress. The figure actually paid out represents less than 20% of this which could prompt people to ask if the cost and expense of the redress scheme was necessary.

Still, the FCA remains optimistic, advising that they are still accepting complaints from BSPS members who have not yet made one.