Around 20,000 members of the British Steel Pension Scheme (BSPS) are not expected to reply to their options letter, meaning they will end up in the Pension Protection Fund, the trustee chairman Alan Johnston has said.

Speaking at a Work and Pensions Committee meeting about the scheme today, 13 December, Johnston explained that for people who do not return their form on time, the default position is for them to stay in the current BSPS, which will move across to the PPF on 29 March 2018.

“No response means PPF, and we’ve been trying very hard to get that message out,” he said. To try to encourage people to make a decision he said the trustees have been sending out postcards, appearing on local radio and putting out press notices.

However, he said some people won’t have opened the letter sent out about making a choice, noting there are 130 members over the age of 100. The Committee were told that around 30,000 members are still to return their options forms, but Johnston said it is “very sad” that he thinks around 20,000 will be “no shows”.

Prior to Johnston’s appearance, the Committee heard evidence from members of the scheme including, British Steel (Teeside) shift operations manager Richard Caddy who said the trustee of the scheme had provided “restricted information” but not the full information that he needed. He also noted that seeing a financial adviser was an “unplanned cost”.

The Committee called the meeting on the BSPS due to reports of inappropriate advice being given to members of the scheme, who are currently faced with making a decision about the future of their pension benefits. Members have until 22 December to return their options form, where they can either opt to transfer out of the scheme, move into a new BSPS, or stay in the current scheme, which will move into the PPF.

BSPS director of pensions Derek Mulholland noted that the trustee started off from the view that for the majority of people transferring out was not the right thing to do. However, also giving evidence former steelworker (Teeside) Stefan Zaitschenko said that 13,000 members have requested a transfer value.

Also giving evidence to the Committee was First Actuarial director Henry Tapper, who has spoken to members on Facebook, and visited members in Port Talbot, where he saw “instances of very poor advice”.

He explained that at the point at which people were considering whether to choose what to do, they had a very emotional response and were “simply wanting out”, without “any kind of rational decision”.

“A lot of advisers were allowing that kind of emotional approach to prevail without any friction whatsoever, so they weren’t pushing them back and asking people to consider the long-term options of what they were doing, and they were getting paid handsomely to do just that,” he said.

“Typically an adviser was charging 2 per cent of the transfer value, and a typical transfer value of the people I was speaking to was somewhere around £300,000, so for this recommendation they would typically be paid £6,000 for a recommendation to transfer.

He explained the way in which the adviser fees are paid is based on conditional pricing, where you only get paid if the pension transfer goes ahead.

“A lot of IFAs had no mechanism for collecting fees if the recommendation was not to transfer…so there was an in-built bias within the advice given, and that was to transfer, and to transfer into a product from which the IFA could be paid.

Tapper said the suspicion is that the number of people that have taken the SIPP route is in the hundreds, but not the thousands. He said that in some cases the money is going into funds, which enable the advisers to be paid a marketing fee.

“My worries were the advice given was bias towards to money being taken away from the scheme because that was the way the IFA would be paid,” Tapper said.

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