Assessing the Feasibility of a British Steel Pension Redress Scheme

The British Steel Pension Scheme (BSPS) scandal left thousands of steelworkers facing financial uncertainty due to poor financial advice and unsuitable pension transfers. In response, the Financial Conduct Authority (FCA) proposed a redress scheme to compensate those who suffered financial losses.

But is such a scheme practical, fair, and effective? In this article, we examine the challenges and potential flaws of the FCA’s approach.

Key Challenges in Designing a Redress Scheme

1. Establishing Fair Compensation

• How should the financial losses be calculated?
• Should redress be based on what pension holders might have received if they had stayed in the scheme?
• The complexity of comparing Defined Benefit (DB) pension security with investment-based alternatives makes this difficult.

2. Identifying Eligible Claimants

• Many steelworkers chose to transfer out of their DB pension voluntarily.
• Determining who was genuinely misled or misadvised is a complex process.
• A blanket compensation approach risks rewarding some while penalising others.

3. Adviser Responsibility and the Role of the FCA

• Many financial advisers responsible for poor advice are no longer in business.
• Who ultimately pays for the compensation—the firms that remain, the FCA, or taxpayers?
• There are concerns that the Financial Services Compensation Scheme (FSCS) will pass costs to other advisers through higher levies.