Former members of the British Steel Pension Scheme (BSPS) are set to receive redress after getting unsuitable advice to transfer out of their pension scheme between May 26, 2016 and March 29, 2018. The Financial Conduct Authority (FCA) believes that over 1,000 former members were affected by the guidance and has now published final rules for a BSPS redress scheme.

Firms will have to review the advice they gave, and then pay redress to those who lost pension funds because of it. FCA expects the average payout to be around £45,000 ($54,000).

“We have consulted widely on a redress scheme for British Steel Pension Scheme members. We found that almost half the advice given to members was unsuitable – an exceptionally high level compared with other cases. Today we’re confirming the rules for the redress scheme, so that BSPS members can get the retirement they worked for,” said Sheldon Mills, Executive Director for Consumers and Competition at the FCA.

Financial Ombudsman Service

The financial regulator will provide a tool that firms need to use to calculate their redress payments. All firms must also provide the details of all cases rated as ‘suitable’ to the FCA, in order to see if consumers would like an independent review by the Financial Ombudsman Service.

All former members should be contacted by their adviser between February 28 and March 28, 2023, and advice will be reviewed by the end of September. A redress calculation should then be provided by the end of December 2023. If the consumers want to receive the payment into their pension instead of a lump sum, they can expect that by February 2024. 

“We’re working to get the scheme in place quickly to end uncertainty for members. We will be watching advisers closely and have put in place checks so that consumers can have confidence that they’re being treated fairly under the scheme,” said Mills.

The FCA also advises that customers of firms that are no longer trading should make a claim with the The Financial Services Compensation Scheme (FSCS). 

Extend BSPS rules

Before this scheme comes into full affect, the FCA also confirmed its updated rules on calculating redress payments for unsuitable defined benefit pension transfer advice. FCA is calculating the redress “based on the money needed to top up a personal pension, so the consumer can purchase an annuity at retirement that provides an income similar to what they would have received had they stayed in the BSPS.”

While it now costs less to buy an annuity, the regulator expects that the average redress payout in this scheme will be lower than originally estimated, at £45,000 ($54,000).

The FCA is also proposing to extend its temporary BSPS scheme longer than March 29, 2018, so that rules will apply until all relevant cases have been resolved. The FCA believes that this will help preventing companies trying to avoid the cost of redress liabilities, plus reduce the potential burden on the FSCS.