Having come through the British Steel apprentice scheme in 2010, the youthful steelworker, who preferred not to be named, says he was like any other young person and was not hugely concerned about his pension. When he started his career, he says the British Steel pension scheme was renowned for being a good, strong scheme and, as a local boy himself, knew he would be set up when he eventually retired.
Fast forward half a decade and that all changed. In March 2016, Tata Steel announced it would be examining options to restructure the business, which would include decoupling the defined benefit (DB) pension scheme from the company.
Then, in December 2016, Tata Steel UK decided to close the scheme to further accrual from 31 March 2017.
A little more than a month after that date, in May 2017, the PPF announced that key commercial terms relating to the Regulated Apportionment Arrangement (RAA) – a restructuring mechanism that allows financially troubled employers to detach themselves from their DB pension liabilities – between Tata Steel and The Pensions Regulator had been reached.
Under those plans, Tata Steel set up and sponsored a new pension scheme, BSPS2, subject to the satisfaction of certain conditions relating to funding size. BSPS members were given the opportunity to move into the new scheme prior to the existing scheme entering the PPF, or to transfer out altogether. In total, almost 83,000 members of BSPS – of a total 130,000 – chose to move into BSPS2.
Some 39,000 members ended up in the PPF because they did not express a choice or because they chose to do so. Of the 44,000 members who were entitled to a Cash Equivalent Transfer Value (CETV), around 8,000 transferred their benefits away from the DB scheme.
‘It was a good pension’
Hearing of the news that the current pension scheme was being closed, the Welsh steelworker says he and most of his colleagues were disappointed. “It’s always been known you get a really good pension and, when we were told it was closing, we thought, ‘what happens now?’ It was put into the likes of our hands and we’re not financial advisers – I’m far from a pensions expert so I find myself trying to get clued up on what is best.”
As per national pension regulations, steelworkers who had a pension of more than £30,000 were told that they needed to seek regulated advice if they wanted to consider transferring away from the scheme following its closure. He says there were many other employees on the same salary or similar who were advised to transfer out and those who did not, he says, only did so because they did not need to take advice.
Taking the plunge to transfer out, the 24-year-old moved his pension, worth around £50,000. Just after the news of the pension scheme closure was released, however, he says a number of employees were given the wrong figures by the old pension scheme, many of which were massively valued below how much they actually had. If he had not challenged it, he says he would have only had around £15,000.
He had to weigh up two choices: “The options given to us at the time were either transfer out of it [BSPS] or end up in the PPF.”
“We had to put our trust into the financial advisers we chose. We didn’t question it [the advice]; I didn’t really understand it. Even now I don’t. We had to put our trust into whoever we were seeing, really, and everyone’s advice was basically to get out.”
The handling of the BSPS by the Financial Conduct Authority has been heavily criticised. In 2019, Professional Adviser published a Defining Broken Transfer series, delving into the BSPS story. The FCA did make an effort to visit Port Talbot on a number of occasions to speak with former members of the BSPS who were concerned they may have received unsuitable advice when they transferred out away from their DB scheme.
‘Many like him’
However, Echelon Wealthcare’s Alastair Rush, who grew up in Port Talbot and set up an office in the steel town to better handle his work with steelworkers, said they do not have anything nice to say about anybody involved in the whole saga.
“Nobody in Port Talbot has a good word to say about the regulator,” the financial adviser says. “In fact, no one in Port Talbot has a good word to say about Tata, the management, the unions, the government or the IFA community in general, so I wouldn’t read too much into that. The truth is, Port Talbot is about as far removed geographically and metaphorically from the decision making hub of the South East as is possible to be imagined. ‘Al, you can’t tell me that this would happen within the M25′, is a pretty typical refrain.”
Rush, who has also been in contact with this young steelworker, adds: “When he told me his age, I coughed my coffee over the steering wheel. He laughed, ‘yeah,’ he said, ‘everyone is saying that now’. There are many like him, equally as young. Young males, in particular, have issues with hyperbolic discounting. A part of the male brain which addresses risk and danger doesn’t fully develop until the late twenties – which, it is believed, is why a disproportionately large number die in car crashes and don’t fully appreciate financial threat or the need to be insured or save for retirement.”
As a result, Rush says it is extremely difficult to expect someone so young – and at such an early stage of their career – to fully comprehend the retirement planning decisions they were confront with. This was a situation he says was thrust upon many young steelworkers in Port Talbot. From an advisory perspective, the further away from retirement that a client is, the far more cautiously you must proceed.
“Generally speaking, a client in their 40s should only transfer if they have a terminal medical diagnosis, or if they have significant other financial holdings. And they have to be significant. But someone in their early twenties is absolutely insane, almost unconscionable.”
Once the move was made to transfer out, the young steelworker did not really think about it and had no real concerns. He was in the majority and so that brought him some comfort: “A lot of people my age got told the same advice by various different advisers. My age, I wasn’t really thinking much in terms of my pension, [and] the issues around the pension scheme were a lot bigger than I actually thought.” Since then, many adviser firms involved in advising steelworkers have lost pension transfer permissions, while some have closed down altogether.
The steelworker only realised the gravitas of the situation when he received a letter from the regulator about the situation last year. Alarm bells rang as the stakes became clear.
“Once the transfer was completed at the time, I didn’t really give it much thought,” he recalls.
“Obviously now, for some of the older fellas it would have been the best advice for them. But as I’m slowly finding out now, it wasn’t the best case for myself and other youngsters.”
Lack of guidance was disappointing
In February, Westminster was visited by hundreds of steelworkers and their families for a three-hour summit with MPs and regulatory bodies to discuss their compensation. The session included the steelworkers and their families giving impact statements on how transferring out of the BSPS has affected them.
Speaking about his own experience, the lack of guidance, the young steelworker says, was disappointing. “That was the worst bit about it: the lack of guidance. And it was more from the part of the pension scheme.”
At the time of the closure and just before the transfers, he adds: “I know people tried to get in touch with them and it was really hard. People were put on hold and lines were cut off. It wasn’t really a nice place to work at the time, [there was] so much uncertainty.”
Rush says: “He could have had the best of both worlds, a core guaranteed income provided by BSPS to cater for the basics and a very comfortable lifestyle, and then surrounding that, orbiting it if you like, would be 35 year of contributions into a defined contribution scheme, giving him the flexibility that he wants. And what’s most annoying is that we don’t have ‘polluter pays’ at all. We have polluters laughing and getting away with it.”
Now, the young steelworker holds an Aviva pension and manages it through an app. He can move money around, into various high-risk funds, if he likes. Although that might be fun for some, he feels like he is gambling with his pension. “It’s a bit of unwanted stress I shouldn’t really be having at this age.
“We’re sort of playing with fire a bit,” he adds, saying having control of his pension feels crazy. “I’m far from a risky person, you feel like you’ve become a bit of a gambler with your pension fund, it’s quite an uneasy feeling. We’ve lost security.”