Earlier this week, we reported that the Financial Conduct Authority (FCA) published final rules for a redress scheme for former members of the British Steel Pension Scheme (BSPS) who received unsuitable advice to transfer out of their defined benefit (DB) pension scheme.
Now, the FCA has fined Pembrokeshire Mortgage Centre Limited (PMC) (trading as County Financial Consultants) £2,354,331 ($2,876m) for unsuitable advice to consumers to transfer out of BSPS and DB pension schemes.
The FCA’s view is that most consumers should have kept the guaranteed income provided by a DB pension. PMC advised 420 consumers on whether to transfer out of their DB scheme. Nearly two-thirds of them were BSPS members. Almost all, 93%, were advised to transfer, which made PMC earn over £2m ($2.4m) in transfer and ongoing advice fees.
“The quality of advice seen here was woeful. The failings were particularly egregious in the context of the British Steel Pension Scheme.”
Mark Steward, Executive Director of Enforcement and Market Oversight, FCA
The FCA states that PMC gave unsuitable advice in 60% of cases, which is even higher than BSPS as a whole.
“Pembrokeshire Mortgage Centre advised hundreds of consumers to give up valuable defined benefit pensions without any adequate justification or rationale, using generic, templated advice not tailored to the specific circumstances of their customers while earning fees in doing so,” said Mark Steward, Executive Director of Enforcement and Market Oversight, FCA.
Unqualified advice
The financial regulator claims that many people that were advised were in a vulnerable position due to the uncertainty surrounding the BSPS’ future, and had only a short timescale to make a decision. Therefore, the FCA means that the pension holders were not provided with the quality and expertise of advice they needed to make informed decisions.
“The quality of advice seen here was woeful. The failings were particularly egregious in the context of the British Steel Pension Scheme, where customers were in an unusually vulnerable position. The FCA’s investigation into the involvement of others in these matters remains ongoing,” Steward added.
The FCA found that PMC failed to include the “provision of generic suitability reports that were not tailored to the circumstances of individual consumers and contained contradictory, misleading and confusing statements”. PMC also failed to have sufficient resources to deal with the increasing cases caused by BSPS, which affected the quality of advice further.
The FCA said many consumers were advised to transfer out of their scheme, even though they were depending on the guaranteed income to fund their living, and could not afford to bear the risk of transferring out – including those who needed the pension money to provide for dependents needing long-term care.
Compensation via FSCS
The total value of the transferred funds, which PMC gave advice on, was approximately £123m ($149.8m), with an average transfer value per customer of approximately £293,000 ($356,745) and £314,000 ($382,314) for British Steel Pension Scheme members.
“Any consumers who were advised to transfer should contact the Financial Services Compensation Scheme (FSCS) to see if they are owed redress,” said Mark Steward.
As of November 30, 2022, the FSCS has upheld 213 Pension Transfer claims against PMC and paid out over £13.3m ($16.2m) in compensation. The FSCS awarded 80 cases (38%) with the highest compensation. If it hadn’t been for the compensation limit of £85,000 ($103,568), the total compensation payable to customers would have been approximately £14.6m ($17.8m).
However, PMC is currently in liquidation. The FCA will give preference to creditors (including consumers), ahead of its financial penalty, to maximise funds available for redress.
The FCA will continue to progress about 30 ongoing enforcement investigations into firms and individuals relating to the BSPS scheme, which are all at a very advanced stage, with some in litigation.