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1st June 2016
Governments proposals to keep the British Steel Pension Scheme out of the Pension Protection Fund (PPF) could benefit scheme members aged under 65, pensions consultancy Hymans Robertson has said.
Ministers are consulting on a proposal backed by trustees and Tata Steel, the present owner of much of the former British Steel, resulting from the trustees believing that as the scheme is funded to above PPF levels most members would be better off if a way could be found to pay benefits outside the PPF.
Trustees think they cannot pay members the pension originally promised, but could pay most the same as or more than they would receive should the scheme enter the PPF.
Tata and the scheme trustees have asked the Government to legislate to allow them to reduce the levels of indexation and revaluation payable on future payment of accrued pension rights and a consultation is in progress on this.
The problem has arisen because the government wants to find a buyer for Tata's businesses so as to keep steel mills open, in particular in Port Talbot where many jobs are at stake. But the scheme is underfunded and cannot continue without a new sponsoring employer willing to support it and pay down its deficit, something the government thinks is unlikely to be found. Ministers therefore want to separate the scheme from the Tata Steel business.
The scheme has 130,000 members. Of these, 14,000 are active, 32,000 are deferred and 84,000 are pensioners.
As at December 2015 figures, the scheme has assets of £13.3bn and liabilities of around £14bn. It is though £1.5bn short of what would be needed to buy out benefits equivalent to PPF.
Hymans Robertson said it expected the government's proposal would see members aged under 65 saved a 10% 'haircut' on their pensions rather than the PPF, while those over 65 would typically get spouses' benefits 5% better than in the PPF.
Partner Calum Cooper said: "On the face of it the proposals look to be in the best interests of scheme members. Finding a buyer prepared to take on the current pension liabilities has already proven to be highly unlikely.
"The only group of scheme members that might do better in the PPF are those categories with lower spouse's pensions and those with temporary pensions in payment up to state pension age. The latter group are an anomaly - they could get this temporary pension for life in the PPF, which could easily be worth more than the PPF haircut of 10% and the loss of spouse's pension from taking tax free cash."
Another of the firm's partners, Clive Fortes, said: "Care needs to be taken to ensure these measures don't open the floodgates for others who can afford pension increases to shirk their commitments, but the [scheme's] circumstances are relatively unique."
Trustees think they cannot pay members the pension originally promised, but could pay most the same as or more than they would receive should the scheme enter the PPF.
Tata and the scheme trustees have asked the Government to legislate to allow them to reduce the levels of indexation and revaluation payable on future payment of accrued pension rights and a consultation is in progress on this.
The problem has arisen because the government wants to find a buyer for Tata's businesses so as to keep steel mills open, in particular in Port Talbot where many jobs are at stake. But the scheme is underfunded and cannot continue without a new sponsoring employer willing to support it and pay down its deficit, something the government thinks is unlikely to be found. Ministers therefore want to separate the scheme from the Tata Steel business.
The scheme has 130,000 members. Of these, 14,000 are active, 32,000 are deferred and 84,000 are pensioners.
As at December 2015 figures, the scheme has assets of £13.3bn and liabilities of around £14bn. It is though £1.5bn short of what would be needed to buy out benefits equivalent to PPF.
Hymans Robertson said it expected the government's proposal would see members aged under 65 saved a 10% 'haircut' on their pensions rather than the PPF, while those over 65 would typically get spouses' benefits 5% better than in the PPF.
Partner Calum Cooper said: "On the face of it the proposals look to be in the best interests of scheme members. Finding a buyer prepared to take on the current pension liabilities has already proven to be highly unlikely.
"The only group of scheme members that might do better in the PPF are those categories with lower spouse's pensions and those with temporary pensions in payment up to state pension age. The latter group are an anomaly - they could get this temporary pension for life in the PPF, which could easily be worth more than the PPF haircut of 10% and the loss of spouse's pension from taking tax free cash."
Another of the firm's partners, Clive Fortes, said: "Care needs to be taken to ensure these measures don't open the floodgates for others who can afford pension increases to shirk their commitments, but the [scheme's] circumstances are relatively unique."
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