As he signed his name, something in Adrian Burns’s gut told him he was making a terrible mistake.
The whole time he had been discussing moving his £345,600 final salary pension out of the British Steel Pension Scheme (BSPS), he was told that his money would end up with a recognisable household name. But when he saw the paperwork, there was a list of firms with funny names that he had never seen before. He hesitated.
Burns looked up at Darren Reynolds, 52, the well-dressed financial adviser sitting next to him at his dining room table. Reynolds had always been nice as pie, and had won over his wife and children.
Moving the pension was a “win, win”, Reynolds had said. Burns trusted him and, besides, everyone else was doing it, so without question he signed the papers.
Weeks later he would discover that he had been misled. His pension had been put into high risk, unregulated, overseas investments. He would pay tens of thousands of his life savings trying to get his money out — and he is far from alone. Burns is one of 8,000 steelworkers who were convinced to transfer a combined £2.8 billion out of the company’s generous pension scheme. Some are still fighting for justice and fair compensation.
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While many workers acknowledge that they made mistakes, they were also let down by their employers, their unions, the City regulator and a compensation scheme designed to protect them.
A ten-minute walk from Port Talbot town centre, behind white iron railings, is a boxy, brown, 1970s business centre. It is home to Echelon Wealthcare, a financial advice firm set up two years ago by Alastair Rush after he heard about the scandal ripping through his home town.
It is a bright Wednesday morning and Rush is sitting around a coffee table with a casually dressed man in his thirties. The man, a former steelworker, seems nervous, nodding along warily to every word Rush says. After a short discussion, Rush tells the steelworker he may have grounds to claim against the financial adviser who convinced him to transfer his £120,000 gold-plated scheme, with a set income guaranteed for life, into a private, personal pension, with no guarantees at all. He was just 27 when he made that decision, which will affect him for the rest of his life.
It is five years since the British Steel pension scandal erupted, and it is only today that some steelworkers are fully realising the extent to which they were misled over the benefits, risks and downsides of leaving their final salary scheme. Rush has conversations like this day after day. His office is a steady stream of gruff-looking men, each nervous, each distrustful and embarrassed, and each wanting to know what can be done to get fair compensation for the bad advice.
The words “gold-plated” are overused to describe final salary pensions, but no term is more apt to describe what the steelworkers have lost: a pension that was not only generous, but guaranteed an income that rose every year in line with inflation and pay a reduced pension to their spouses when they died.
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The values of their pensions have been whittled away by fees and charges, and in some cases suffered terrible investment performance as their pensions are now exposed to the risks of the stock market. That’s why it is rarely a good idea to transfer out of a final salary scheme, no matter how generous the cash offer seems.
A town in turmoil
In March 2016 the steel industry was going through its latest scare. At its peak in the 1970s, it employed 300,000 workers, but growing automation and cheap imports wreaked havoc. By 2016 steel represented just 0.1 per cent of Britain’s gross domestic product.
The steelworks in Port Talbot has long been at the heart of the community that its chimneys and furnaces loom over. It employs 4,000 people in a town of 35,000. British Steel was privatised in 1988 and went through several owners before the plant in Port Talbot was sold to the Indian conglomerate Tata in 2007.
Like many former nationalised industries, British Steel had a generous final salary pension scheme, and Tata agreed to take this on too. But by 2016, Tata Steel UK was reporting five-year losses of £2 billion and the black hole in the pension scheme for 124,000 savers was about £2.5 billion. As Tata’s position worsened, it was feared that the firm would collapse and, along with it, the pension.
It was a worrying time for the steelworkers — they knew 700 jobs were going to be axed, they just didn’t know whose. The impact would be devastating.
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A consultation was launched to see if the BSPS could be separated from Tata Steel UK. One steelworker remembers feeling as if they would be “out of a job and out of a pension” if nothing changed.
“There was no trust between the company and the staff,” said Burns. “People were worried.”
At the same time, a pension scandal was also brewing at the retailer BHS, which had gone bust. Anger was growing that the tycoon Sir Philip Green had left workers in the lurch. With a famous billionaire on his yacht to blame and the store’s name on hundreds of high streets, this scandal commanded the attention of regulators and MPs.
What was happening in south Wales, though, had not escaped the attention of dozens of unscrupulous financial advisers, who were ready to pounce.
Time to choose
If a company with a final salary pension scheme goes bust, savers do not lose everything. The fund is passed to the Pension Protection Fund (PPF). Savers still get a pension, but can lose 10 per cent of its value.
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In August 2017, it was agreed that Tata Steel UK could detach itself from the company pension scheme as a way of saving itself and the pensions. Steelworkers were given a choice. The first was to stick with the “old” BSPS, which was likely to fall into the PPF. The second was to move to a scheme called BSPS II; a new, less generous pension, sponsored by Tata Steel UK. It would have roughly the same benefits as the old BSPS, but annual pension rises would be smaller and older pension entitlements would not increase with inflation. However, as this was just a proposal, some steelworkers did not trust that this option would not be changed.
There was a third option, to convert their pension into a lump sum and transfer it out of the scheme altogether.
Many steelworkers were quickly convinced that this was the best option, as many had built up pots of £400,000, with some coming in at more than £1 million. It was a massive sum. Average house prices in Port Talbot are still just £145,000.
BSPS gave the steelworkers a 90-day “Time to Choose” deadline.
“I was a rabbit in the headlights,” remembered Burns. “When you look at the phrase now, it’s pressure, isn’t it? I was just thinking, what am I going to do?”
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Paul Goldhawk, an electrician at the steelworks who transferred his £160,000 pension pot, said: “It was all anyone was talking about. It was, ‘How big is your pot? Are you transferring out? Who are you going with?’”
Information packs were sent to steelworkers, a free telephone helpline set up, and roadshows held. But despite the fact that they had been checked by the Pensions Regulator and the PPF, the option packs given to workers were inadequate, a parliamentary report later found. Some 4,000 of them lacked basic information.
Just 18 staff in the BSPS office were on hand to help 124,000 members. One worker said he called more than 207 times. The Department for Work and Pensions later said that the steelworkers had been “woefully under supported” to make a “life-changing choice in a hurry”.
With nowhere else to turn, Burns contacted a financial adviser whose name he had heard at work: Darren Reynolds from the advice firm Active Wealth (UK).
From the moment the future of the scheme was cast in doubt, financial advisers, who earned an advice fee only if a steelworker transferred their pension, started appearing. The FCA says it is in most people’s best interests to keep a final salary scheme, but 79 per cent of the steelworkers who took advice transferred out.
It had also been made much easier to transfer a retirement fund after the introduction of pension freedoms in 2015, which meant anyone could invest their pension in any way they wanted.
Posters and leaflets for advice firms started to appear in the walkways and break rooms at the steelworks. There were free lunches and some advisers held sessions on the golf course or in pubs.
Some were reputable; many weren’t. Suddenly there were 369 financial advice firms in Port Talbot and all but five were so small they flew under the radar of regulators. Even so, demand was so great that many advisers were overwhelmed and closed to new business.
“You couldn’t get a local adviser for love nor money,” said one steelworker who ended up transferring his £120,000 pension. “All the big ones already had a hundred people on their doorstep. I ended up going with the first one who answered the phone.”
One steelworker said he was offered £300 from his adviser for every colleague he passed on who transferred their pension. He never took them up on the deal.
Another was offered rugby tickets and a night away if he agreed to transfer. His pension lost £80,000 after three years.
Reynolds turned up at Burns’s house and persuaded him to transfer £345,600 out of the British Steel scheme.
He says he was told he would get a minimum of 5 per cent investment growth a year, and his wife and children would get 100 per cent of his pension if he died. He could get his money out at any time.
Burns looked Reynolds, from Willenhall, West Midlands, up on the Financial Conduct Authority (FCA) register of regulated firms. He was listed as a pension transfer specialist.
Reynolds ended up transferring 288 people, including steelworkers, out of their workplace schemes, costing them £24 million. He was banned from being a director of a company for 13 years in 2021 for failing to act in clients’ best interests.
Reynolds was contacted for comment.
“Darren was as nice as pie,” said Burns, who paid him a cut-price £1,500 for the pension transfer advice.
Meanwhile, the same conversation was happening all around the town. Marc Underwood, a steelworker, used an adviser recommended by a friend — the firm Smith, Law and Shepherds IFA (SLS).
“They were quite quick to recommend I transfer out of the scheme,” said Underwood, 45, who had a transfer value of £120,000 and was visited at his home by an adviser. “He latched on to the fact that I was worried about what my kids and wife would get if I died, and he said it was a no-brainer.”
The Financial Ombudsman Service (FOS), a dispute resolution service, ruled that the advice for Underwood to transfer out of the scheme was unsuitable and ordered SLS to pay compensation.
SLS declined to comment.
By November, fears were growing at the FCA that steelworkers were being targeted. After a visit from the FCA, Active Wealth (UK), stopped advising on pension transfers, and five other firms working in Port Talbot stopped in December. Burns tried to get his money out, but discovered it would cost him £19,000.
As Christmas approached, the FCA, along with officials from the Pensions Regulator and the Pensions Advisory Service, held a meeting in a pub and told steelworkers to complain to their financial adviser if they were unhappy with the advice given.
Thousands were slowly realising that they had been misled. Some were signed off from work with stress. “My stomach dropped out. It was terrible. I didn’t tell my wife. I was too embarrassed,” said Chris Cook, another steelworker. “How can you plan Christmas when you’ve just been told that you’ve lost a huge part of your pension?”
Savers betrayed
Regulators have been picking up the pieces ever since. An FCA investigation in 2020 found that of 8,000 steelworkers who transferred out of the scheme only 1,680 had suitable advice.
A police investigation started, but to date no-one has been arrested. A parliamentary investigation blamed the Pensions Regulator, the FCA, the PPF and the government for failing to ensure steelworkers were adequately informed. A National Audit Office report last week highlighted failures of regulators too.
The FCA said: “We recognise the harm caused to steelworkers and communities, and continue to work to ensure members receive compensation.”
To date, the only financial adviser fined is Geoffrey Armin who worked for Retirement and Pension Planning Services. He was found to have made £1.2 million from pension transfers, some of which came from 174 steelworkers convinced to transfer out £74 million.
Many of the firms immediately went insolvent under the weight of complaints about unsuitable advice. Many are still folding today. Such claims are passed to the Financial Services Compensation Scheme, but this can only award payouts of up to £85,000. Some workers lost as much as £489,000. While the FSCS has paid out £37.3 million in compensation so far, workers are still £18 million out of pocket. Burns was offered £19,000 from the FSCS for the unsuitable advice he was given, but this only covers the exit fee to get his money out of the high risk investments.
SLS, the firm that advised Underwood, has gone into administration, so he will now have to claim from the FSCS.
Many workers did not know they could complain directly to the FSCS or the FOS for nothing, so they used claims firms, who have now made £3.2 million from the scandal, pocketing compensation that could have gone to steelworkers.
“The steelworkers are still paying the price. It’s a very tightknit community, and the waves of shock and anger roll out to the wider town,” said Stephen Kinnock, Labour member for Port Talbot.
No end in sight
Rush first heard about what was happening in the summer of 2017 when a friend got in touch, worried he had made a mistake by transferring his pension. As he heard more tales, he tried to get regulators to pay attention, and offered pro bono help with the claims and complaints process.
Many of the steelworkers, hardened by years of challenging and dangerous work, do not speak easily about the emotional toll of the saga.
BHS pensioners were able to stay in their scheme after public pressure forced Sir Philip Green to put £363 million into it and save it from falling into the PPF.
The future for steelworkers is less certain. The FCA is due to consult this month on whether to enforce a redress scheme.
In the end, the BSPS did not fall into the PPF because the scheme had enough money to offer better-than-PPF benefits (but still worse than the original benefits of the “old” BSPS). The BSPS II went ahead as planned, but those who transferred out can never use this scheme.
Since the BSPS scandal, contingent charging has been banned. While it will make it harder for a repeat of what happened in Port Talbot, it has made pension transfer advice harder to come by, and more expensive for those who just want to know their options.
The FCA has issued fines totalling £1.3 million and has begun more than 30 investigations. All but one firm has stopped providing pension transfer advice. The FCA now also works more closely with the Pensions Regulator on intelligence sharing, and both regulators intervene earlier if there are risks of increased pension transfer activity. Pension scheme trustees also now have the power to refuse a transfer if it might be part of a scam.
Some of the advisers involved are still working in the industry. Some have re-emerged as directors of new financial companies and 12 of the firms who were found to have given unsuitable advice have tried to start up business again: the FCA stopped them.
Rush said: “When the book is finally closed on British Steel, the biggest financial services scandal in a generation, we will see that people at every step conspired, however unwittingly, to fail the people they were paid to protect.”
