The regulator says that BSPS members should receive an estimated total pay out of £49m, with an average payment per member of about £45,000.

The £49m total payout is less than the £70m+ the FCA estimated earlier this year. An improvement in annuity rates is credited with the reduction.

Advisers will contact members between 28 February and 28 March to kickstart the process under the regulator’s redress scheme.

The advice that BSPS members were given will be reviewed by the end of September next year.

Firms should provide members who opted to received compensation as a lump sum with their redress calculation by the end of December 2023.

Those who opt to receive a payment into their pension scheme will receive their calculation by February 2024.

Members who were given advice by firms that are no longer trading will be instructed to make a claim with the Financial Services Compensation Scheme (FSCS).

The FCA is providing advice firms with a tool they will have to use to calculate redress payments. Within this tool, advisers will have to provide details of all cases rated as 'suitable' to the FCA so it can check if consumers would like the Financial Ombudsman Service (FOS) to independently review their advice.

Sheldon Mills, executive director for consumers and competition at the FCA, said: “We have consulted widely on a redress scheme for British Steel Pension Scheme members. We found that almost half the advice given to members was unsuitable – an exceptionally high level compared with other cases.  Today we’re confirming the rules for the redress scheme, so that BSPS members can get the retirement they worked for.

“We’re working to get the scheme in place quickly to end uncertainty for members. We will be watching advisers closely and have put in place checks so that consumers can have confidence that they’re being treated fairly under the scheme.”

The regulator has also confirmed its updated rules for calculating redress payments for unsuitable DB pension transfer advice.

The regulator said this will better ensure that redress puts consumers back in the financial position they would have been had they remained in their DB scheme, as far as is possible. 

Redress is calculated based on the money needed to top up a personal pension, so the consumer can purchase an annuity at retirement that provides an income similar to what they would have received had they stayed in the BSPS. 

As it now costs less to buy an annuity, the FCA said it now expects the average redress payout in the scheme to be £45,000, lower than the originally estimated amount of around £60,000.

The FCA is also proposing to extend its temporary BSPS asset retention rules so that the rules apply until firms have resolved all relevant cases.

The regulator said this will help prevent firms seeking to avoid the cost of redress liabilities – and reduce the potential burden on the FSCS.

Dr Matthew Connell, director of policy and public affairs at the Personal Finance Society, said: “We recognise that a significant number of BSPS members were given unsuitable advice, and that the FCA is right to set up a Section 404 scheme to ensure that redress is paid to those members who qualify for it, and it is right to take steps to ensure that firms have the resources to pay compensation.

“We should remember that the FCA estimates that over half of transfer cases were found to be suitable, in spite of a chaotic transition process to the new British Steel pension arrangements, in which key information was only given to members in a piecemeal way by the British Steel Pension Scheme.

“This figure is in stark contrast to FOS uphold rates for BSPS complaints that were running at 98% at the beginning of 2022. It is important that FOS judgements follow the approach set up by the FCA for the Section 404 scheme. If a complaint to the FOS at the end of the process is almost certain to be upheld, then ultimately consumers will end up paying a compensation bill that is not justified by the facts.”