Gareth Jones was looking forward to retiring in 2018 after 40 years working at Tata Steel’s giant operations in Port Talbot, south Wales.
But the 57-year-old’s plans are now in severe doubt after he became caught up in what is feared to be a big pension mis-selling scandal.
“My financial adviser put my pension money into a fund that I didn’t know existed,” said Mr Jones, who is not using his real name.
He and fellow Tata steelworkers at Port Talbot claimed that in the autumn of last year they were lured by allegedly unscrupulous advisers into cashing in their pensions with the company, with the money then being moved into little-known investment funds that levy high charges. Experts said workers were victims of bad advice about their pensions.
Members of Tata’s pension scheme have “been exploited for cynical personal gain by dubious financial advisers”, said the Commons work and pensions select committee, which has been investigating the Port Talbot affair, in a report.
It went on to say that many members of the scheme “were shamelessly bamboozled into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees”.
South Wales police is probing allegations of pension fraud at Port Talbot, while the chief UK financial regulator is investigating mis-selling.
But the Financial Conduct Authority is likely to face awkward questions about whether it should have intervened sooner at Port Talbot. Some of the companies connected to the Port Talbot affair had come across the FCA’s radar earlier.
A blast furnace at the Port Talbot steelworks © Jeff Morgan/Alamy
Last year Tata, in an effort to keep its lossmaking UK operations afloat, announced a restructuring of its large British pension scheme, which at that time had about 8,000 members who were working for the company.
Tata wanted rid of the fund — known as the British Steel Pension Scheme, as the Indian steelmaker’s UK assets were once part of the then state-owned British Steel — because it was a defined-benefit pension scheme that obliged the company to provide generous retirement benefits to workers.
Workers could choose between joining a new, less attractive company pension scheme, moving to a special fund for collapsed companies, or cashing in their retirement pots and investing the money elsewhere.
Mr Jones is one of 2,600 workers who selected the third option.
He was mulling what to do last April when he came across Celtic Wealth Management, a Swansea-based firm that specialises in introducing people to financial advisers.
Celtic — run by Clive Howells, a former police officer — drummed up business from Tata workers by offering “obligation-free” advice sessions on their pension options.
Mr Howells wooed workers at the meetings held in hotels and pubs around Swansea by offering them a free meal of sausage and chips.
Clive Howells © Chris Ison/PA
Also present at the events was Darren Reynolds, sole director of Active Wealth UK, a financial advisory firm in the West Midlands that specialised in helping people with transferring company pensions into stock market-based retirement plans.
Active Wealth advised about 300 Tata workers, of which about 60 cashed in their pensions and transferred the money elsewhere. The highest transfer was worth £790,000, while the average sum was £398,000.
The problem for these 60 Tata workers is that they have had their pension money put into two little known investment funds that involve high charges.
The funds are called 5Alpha Conservative and 5Alpha Adventurous, run by Newscape Capital Group, a fund manager based in the exclusive Mayfair district of London.
Several steelworkers — who declined to be identified — said they were told of few charges beyond Active Wealth’s £1,500 advice fee.
The workers added they were exposed to a series of charges they were not aware of, led by Newscape’s fees, which will hit their investment returns.
Newscape said last year in a document about the 5Alpha Conservative fund that investors faced estimated ongoing annual fees of 2.51 per cent, calculated on the value of their pension pots. The equivalent figure for the 5Alpha Adventurous fund is 2.12 per cent.
Most significantly, workers who want to take cash from their investments in the first year after putting them in the funds are hit with a 5 per cent exit charge by Newscape.
The fee falls to zero after five years, but for some workers this is a big issue because they want ready access to their investments. Several have had to pay charges as high as £17,000 after deciding to withdraw all their money from the 5Alpha funds.
The funds were only launched in 2016. “The 5Alpha Conservative fund is ranked 98 out of 101 funds in its sector over one year, with no doubt the excessive charges being a drag on this performance,” said Patrick Connolly, certified financial planner with Chase de Vere.
The entrance to Newscape Capital Group’s offices in London © Tolga Akmen/FT
Other entities involved in levying charges on Tata workers’ pension assets include Gallium Fund Solutions, a Kent-based investment manager.
Gallium was appointed by Active Wealth to deal with the workers’ pension money, and directed the cash to the 5Alpha funds.
Gallium has a management fee of 0.36 per cent. Vega Algorithms, a platform technology provider that is an adviser to Gallium, has a fee of 0.30 per cent. These charges were disclosed to the Tata workers by Active Wealth.
Another layer of charges stems from how the workers who chose to cash in their retirement benefits from the Tata scheme were opting to create so-called self invested personal pensions.
The providers of these specialist pensions — Intelligent Money and Momentum Pensions — levy administrative charges that run to several hundred pounds. These charges were disclosed by advisers, but withdrawal fees were allegedly not.
Dozens of Tata workers have lodged complaints with Active Wealth and Gallium.
Some workers said they thought their pension money had been invested with Gallium and Vega.
They added they were not told by Active Wealth that Gallium, as a discretionary investment manager, might put their money in the 5Alpha funds. They only learnt of this when they went online to see details of their newly created retirement plans.
The chief UK financial regulator intervened last November to halt Active Wealth’s work advising customers on pension transfers. Eight other financial advisory firms dealing with Tata workers and the possibility of cashing in their pensions have also stopped this activity following the FCA’s move.
But questions arise as to whether the regulator could have acted sooner, because concerns about Active Wealth and investments being put into the 5Alpha funds had surfaced previously.
It has emerged that the FCA was probing pension transfer work by Mr Reynolds and Active Wealth in 2016. The regulator asked for files from Mr Reynolds.
It has also emerged that a client complained to Active Wealth before the Port Talbot affair after his money was invested in the 5Alpha funds — this time via Strand Capital, a London-based investment manager, which went into administration last May.
Roger Morgan, 53, said he was advised by Active Wealth in 2016 to put his £88,000 pension pot with Novia Financial, a wealth manager and platform provider.
However, he claimed his money was actually placed with Strand, and later with the 5Alpha funds. He said his money ended up with these funds without his knowledge.
Separately, the FCA was sent a document last May outlining complaints by investors — with no connection to the Tata workers — who were aggrieved about their money being put in the 5Alpha funds in 2016, allegedly by Strand.
These investors’ financial advisers wrote to Strand, claiming they were not notified that their money had been moved into the 5Alpha funds.
The advisers’ concerns were revealed in a witness statement submitted to the High Court in London by one of Strand’s directors, as part of its administration proceedings. It was this statement that was sent to the FCA.
Active Wealth went into liquidation this month. Mr Reynolds and Mr Howells did not respond to requests for comment.
Gallium and Vega said they had no role in the financial advisory process.
Gallium said it did not believe the work and pensions committee’s comments were directed at the firm.
It described the relevant fund investments as being “low to medium risk”, saying investors had indicated on application forms that they wished to invest for the medium to long term, “in this instance a minimum of five years”. The exit fee charged by Newscape would not apply if they invested for that five year period.
Newscape, too, said it was not a financial adviser and therefore had no role in steering investors on the suitability of their investments.
It said its only investor in relation to Tata workers’ pension money was Gallium and Vega.
Newscape added its funds were “not outside of the expectations of risk or performance within their peers”, and it noted that some large fund providers have 6 per cent exit fees that reduce over six years.
The FCA said if any Tata workers in the company pension scheme were not told about where their retirement pots were being invested, they should contact the Financial Ombudsman Service.