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Hundreds of steelworkers have been lured by financial advisers to transfer out of their British Steel pension funds at Port Talbot and Scunthorpe, with £25m flowing through one adviser which is now under investigation.
Financial advisers descended after Tata Steel, the owner of the sites, said it would offload the British Steel pension scheme (BSPS) into the Pension Protection Fund (PPF) in a deal to keep the steelworks running.
About 130,000 current and former steelworkers were given the option to transfer to the lifeboat fund and lose some benefits, or go into a new Tata Steel scheme, with potentially higher payouts, or opt out into a private pension.
In Port Talbot, one financial adviser described a “feeding frenzy”, with some advisers travelling hundreds of miles in the hope of high fees for each pension pot they succeeded in transferring.
The Financial Conduct Authority, the regulator, intervened this week to freeze the ability of Active Wealth UK, a financial adviser based in the Midlands, from giving any further transfer advice.
So far, Active Wealth has overseen £25m in transfers, according to evidence provided to the Financial Times. The firm’s legal adviser did not respond to requests for comment.
Some advisers advertised complimentary “chicken in a basket” seminars, with free food, in local hotels to drum up their business. With the FCA investigating the situation, Labour MPs called for urgent action.
Alastair Rush, of Echelon Wealthcare, a financial advisory firm, reviewed the advice given to some steelworkers and said that many had been not told about high charges, or were put into unsuitable, risky investments.
Tata steel works at Port Talbot © Gareth Iwan Jones/FT
“Where is the protection for these people?,” said Mr Rush. “Where is the commitment to them from the state, the regulator, the employer, the trustee? This is nothing short of appalling.”
Since April, around 2,000 steelworkers have opted to take their future pension income as a cash lump sum, driven by fears about the security of the Tata retirement fund.
The current regulatory advice is that most people with “final-salary” pensions are best to keep these benefits which pay a secure income in retirement.
According to steelworkers in Port Talbot, advisers have been urging them to transfer final-salary benefits, often valued at between £300,000 to £500,000 into riskier schemes without any risk-profile checks, which determine what assets are best suited for pension cash to be invested.
Darren Reynolds, an adviser with Active Wealth UK, travelled more than 140 miles from his office in Willenhall, West Midlands, to Port Talbot.
One former steelworker said that Mr Reynolds had charged him an initial £1,500 fee to transfer his pot, with a further 0.66 per cent annual management charge.
Despite asking for a blue-chip pension scheme, Mr Reynolds put his money into Vega Algorithms, a fund manager that was only authorised by the FCA this March.
“We had gone to Mr Reynolds and told him that we wanted our pension to be put in a well-known company that we had heard of, like the Prudential, and could trust, as it is a very large amount,” said the former steelworker, with almost three decades of pension contributions.
“The money was put with Vega, a fund we had never heard of or don’t even know what it is. We are so concerned about our cash and we just want it back.”
Another former steelworker, who has a life-threatening illness, said that Mr Reynolds had transferred his £380,000 steel fund into Vega Algorithms and Gallium Fund Solutions, an alternative investment fund manager, which, on its website, says its “primary objective is to enable its clients to create exciting investment opportunities”.
Steelworkers wait for UK business secretary Sajid Javid to leave Tata Steel’s steel plant at Port Talbot in April 2016 © AFP
“He didn’t go into too much detail about what Vega does,” said the 56-year-old, who also declined to give his name. “I was clear I wanted a low-risk safe investment.”
He claimed that he was not given a fund schedule for where his money would be invested and when he asked for his pension fund to be returned, he was told he would be subject to a 7.5 per cent fee.
Active Wealth UK and Mr Reynolds did not respond to a request for comment. Vega Algorithms said its portfolios were invested only into “fully authorised and regulated” European mutual funds. It added: “The funds hold only standard assets and are fully liquid.”
Active Wealth UK also transferred pension funds into Intelligent Money, a self-invested-personal-pension provider (Sipp), which said it was currently holding around £9m in pension cash for 26 steelworkers.
Momentum Sipp, which offers pension wrapper products, said 110 steelworker pensions had been invested, or were in the process of being transferred.
Mark Gaywood, group chairman of Momentum, said that the total value of steelworker cash invested represented less than 1 per cent of its entire portfolio of £1.5bn in assets under administration. He said: “We only deal with FCA regulated firms and allow FCA standard investments.”
Mr Gaywood said all further investments and transfers from the British Steel Pension Scheme were “on hold, pending client instruction which we feel is acting in their best interests”.
Port Talbot steel works © Gareth Iwan Jones/FT
On Friday, worried steelworkers were calling the Financial Conduct Authority concerned about their cash. There are concerns that British Steel pension scheme members do not have access to enough advice ahead of a December 11 deadline to choose where they should put their pots.
”Many steelworkers are very stressed and losing sleep,” said Gareth Slee, a 55-year-old retired steelworker from Port Talbot who has transferred his pension.
“They’ve worked in the steelworks for years and years and were expecting to get their pension and now they have to make some pretty big decisions and they don’t know what to do or what is right or can’t find someone to trust to help them.
“They don’t know who to trust and this shouldn’t be happening to them.”
The trustees of the £15bn British Steel Pension Scheme have said they are concerned about the large numbers of workers transferring their pensions out of the scheme, with about 13,000 transfer requests since April, the equivalent of about a third of all members who are unretired and eligible to convert their pots into cash lump sums.
Of those, about 2,200 have opted to pull out of the scheme this year compared with 400 transfers undertaken last year, said the trustees. “The volumes are much higher than last year,” said Derek Mulholland, director of pensions with the BSPS trustees.
“We are concerned people are making decisions without the correct information, or because they feel rushed to do so.”