The trustees of the British Steel Pension Scheme underestimated the demand from members to transfer out of the defined benefit scheme via cash equivalent transfer values (CETVs) following the collapse of the scheme's sponsoring employer. Over 7,500 members transferred out, representing a total outflow of £3 billion from the £12 billion fund. The high level of transfer activity was driven by increased transfer values, members' lack of confidence in the sponsoring employer, and aggressive marketing from some financial advisors. The volume of transfer requests overwhelmed the administrators, causing delays and distress for members. Regulators are investigating the transfers and intervening to strengthen consumer protections for members.

1. “I wonder how many of the financial advisors who
recommended transfers out, predicted a 10% drop in the
stock market in one week? Not many is my bet”.
The Story of Port Talbot
PLSA South Eastern - June 13th
Henry Tapper

2. Transfers out of DB pensions tripled last year
Source ONS MQ5 Tables – March 2017 (figures in £m)

3. Managing transfers – a new challenge for
IFAs
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1. The story of
Port Talbot
2. Problems and
how to spot them
3. The Regulator’s
dilemma
4.
Trustee/employer
conflicts

4. British Steel Pension Scheme - Background
• In 2017,Tata told the Trustees they would no longer support the Scheme
• The Scheme was heading for the PPF but the Trustees, Tata and the
Pensions Regulator agreed a Regulatory Apportionment Agreement (RAA)
• The RAA took effect on March 29th
• From September to 22 December, the 122,000 members had a “Time to
Choose”
• The next 3 months were about organising a new scheme BSPS 2, and
organising transfers
• People who made no choice went into the Pension Protection Fund (PPF)
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5. Time to choose
Trustees said “Time to
Choose” between
• BSPS 2
• PPF
Deferred members heard three
choices
• BSPS 2
• PPF
• CETV – cash in hand
(on average £400,000)
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6. What drove transfer activity?
• Transfer values more than doubled for younger members in March
2017
• Member’s opinion of Tata’s “covenant”
• Time-bound offer; “Buy now while stocks last”
• Key influencers in steelworks were paid by Celtic (£80 a lead)
• Repeat behaviours; “I’ve always followed my foreman”
• Process driven advisors
• Telephone numbers (“I thought my pension was £30k – it turned out
to be worth £750,000!”)
NB CETVs at c 25x multiple ;5% reduction from insufficiency
report; relatively low valuation from high discount rate (not poor
benefits)
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7. Did the Trustees get it wrong?
“The Trustees believe the vast
majority of members would be
better off in BSPS2” *
“We underestimated demand
for CETVs”*
“We saw no need for a Transfer
helpline”*
* Allan Johnston – BSPS Chair
• 97,000 out of 122,000 members
voted
• Voters split 83/17 in favour of BSPS2
• 25,000 people defaulted into PPF
• Estimated 7,500/43,000 deferred
members took CETVs by 29 March
• Total outflow from £12bn fund via
CETVs - £3bn
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8. Operational impact
• Underestimate of interest in CETVs – 17,000/43,000 deferreds asked for a
CETV
• Guidance helplines swamped with transfer questions; Glasgow
uncontactable
• Delays in CETV issuance force deferral of “guaranteed period”
• Guillotine for Transfer return set 6 weeks prior to RAA deadline
• Still unclear how many CETVs are in the pipeline
• Distress among members waiting for information on progress of their CETVs
• Substantial numbers of CETVs missed the 29th March RAA deadline
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9. Port Talbot in retrospect
• Trustees chose guidance over advice and telephones over face to face
• Workers organised themselves through Facebook;- “another country”
• Trustees/administrators lost control of transfer process
• Volume of sales led to clumsy admin with problems amplified by social media
• Glasgow admin HQ swamped, phones not picked up, emails not returned
• Many transfers will never be completed as IFAs “volunteer” to withdraw
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10. Questions
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How relevant is Port Talbot to ongoing debate?

11. Transfers can be problematic, how do
IFAs stop things going wrong?
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1. The story of
Port Talbot
2. Problems and
how to spot them
3. The Regulator’s
dilemma
4.
Trustee/employer
conflicts

12. Does the value chain have to be this long?
• Stage one – foremen paid £80 by Celtic Wealth for “bums on seats”
• Stage two – sausage and chips dinners to set up meetings with Active
Wealth Celtic paid £700
• Stage three – Active Wealth advise, TVAS outsourced - Client charged
£1,500
• Money transferred to SIPP (Momentum/IP)
o SIPP instructed to invest through Gallium who invest in Vega which invests into
5Alpha, which invests into various funds which invests into assets.
o Complex fund disclosures ; 5Alpha has a 2.51%pa OCF, Vega adds 0.66% with
further deductions by Gallium and SIPP providers
o Class E shares in 5Alpha carry 5% marketing fee + dilution levies
o Redemption values typically 10% lower than CETVs
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13. Can ordinary people understand SIPPs?
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14. Should IFAs be asked to blow the whistle?
• Defamation;
◦ litigation has come from those with deep pockets
• Tipping off;
◦ Action Fraud, Police, FCA and tPR are investigating ; over 70
complaints with FOS
• Obstruction;
◦ Members warned by advisers that trustees will obstruct; perverse
consequences of due diligence
• Being wrong;
◦ Members have rights to transfer and know their own circumstances
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15. Questions
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Are you able to help members over CETVs?

16. How best for the Regulators to
intervene?
16
1. The story of
Port Talbot
2. Problems and
how to spot them
3. The Regulator’s
dilemma
4.
Trustee/employer
conflicts

17. Transfer activity acutely embarrassing
to FCA
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Work and Pension Select Committee launched probe into Port Talbot
as part of Pension Freedoms enquiry
• FCA guide 10 advisers into “voluntary” agreements to cease transfers
• FCA initiates general review of advisers
• Published research suggests 53% of CETVs are questionable or poorly advised
• FCA and tPR launch project to establish a joint pensions strategy
Megan Butler asks Clive Gordon to “reach out to occupational pension schemes”
Head of Retail Investments Department Supervision – Investment, Wholesale & Specialist Division
Tel: +44 (0)20 7066 1412 www.fca.org.uk

18. Ironically, transfers may strengthen BSPS 2
• Cashflow to BSPS 2 reduced by up to £3bn
• Destabilisation of BSPS investment strategy in final months
• Loss of 7000 members to PPF/ BSPS 2
◦ New scheme weighted towards pensioners
◦ Financial buffer for BSPS not impacted
We expect BSPS 2 to have a lower allocation to growth assets
and stronger buffer. Assets and liabilities will be lower, there will
be a marginal improvement in FRS102 reporting
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19. Did the FCA create unintended
consequences?
1. under section 48(1) of the Pension Schemes Act 2015, scheme trustees must
carry out a check on whether members have received appropriate independent
advice before permitting a transfer of safeguarded benefits;
2. under sections 98(2) and 99(2A) of the Pension Schemes Act 1993, a member
loses the right to a cash equivalent if the scheme trustees carry out this check
but the check does not confirm that the member has received appropriate
independent advice; and
3. appropriate independent advice is defined in section 48(8) of the Pension
Schemes Act 2015 as “advice that (a) is given by an authorised independent
adviser, and (b) meets any other requirements specified in regulations made by
the Secretary of State”.
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20. What of the proposed interventions?
• Banning the practice of contingent fees
• Further qualifications for advisers
• Ongoing review of Pension Transfer specialists
• Informing consultations on platforms; retirement outcomes;
pension transfers and the financial advice market review
The FCA has reverted to its original position and will not be
pursuing its “transfer neutral stance”.
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21. Questions
21
Do you think the Regulatory interventions will work?

22. ?
22
1. The story of
Port Talbot
2. Problems and
how to spot them
3. The Regulator’s
dilemma
4.
Trustee/employer
conflicts

23. Managing funding conflicts
• Trustees de-risking investment strategies drives up transfer values
◦ Increases the incentive to transfer
◦ Dilutes the long term value of the scheme
◦ But improves scheme solvency for those who remain
• Employers benefit from CETV take up (at accounting level)
◦ TPR wants schemes to be self-sufficient but..
◦ 53% of DB transfers tested in 2017 found by FCA to be questionable
◦ 30% found to be “wrong” FCA PS18/6:
◦ Can employers incentivise transfers responsibly
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24. Operational challenges for trustees and
employers
• Are Trustees clear about their CETV pipeline?
◦ Trustees need to focus on CETVs as part of BAU.
• Can Trustees spot concentrations of CETV requests and take
up?
◦ Good MI can help regulators spot the next Port Talbot
• Can Trustees track the destination of the money?
◦ Spotting possible scams
• Can employers make life easier for staff with DB rights?
◦ Employers can help staff understand issues and refer to IFAs
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25. Integrating advice into the
workplace
• Advisers billing employers/trustees
◦ Less fee resistance – VAT recoverable
• Chive
◦ Smaller advisers offering local service with clear standards
• Bulk deals
◦ Replicable transfer analysis by exclusive contracts with large schemes
• Working with TPAS
◦ Many prospects who are not suitable could be referred to TPAS
• Developing relationships with scheme administrators
◦ Relationship building – understanding each other’s issues
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26. Questions
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Should your scheme be considering a member support service for transfers?

27. Disclaimers and warnings
• This material has been prepared by First Actuarial LLP (FA) who take full responsibility for it
• FA are not financial advisers but are regulated by the Institute and Faculty of Actuaries in
respect of a range of investment business activities.
• Any figures in this presentation are illustrations only and are designed to explain how
investments including pensions operate.
• The content of this presentation is designed to provide you with helpful information
regarding and nothing in it should be regarded as providing you with any specific advice or
recommendations.
• If you require specific advice or help regarding your financial planning, please contact an
Appropriately Qualified Financial Adviser.
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