A Government plan to move Tata Steel members’ pensions increases from RPI to CPI in a bid to cut its long term liabilities has sparked concern that a precedent could be set that could dilute pension benefits across the wider DB population.
A DWP consultation published today has set out four options for resolving the situation and freeing the sponsor from the liability for the scheme – Using existing regulatory mechanisms to separate the BSPS, payment of pension debts, reducing the scheme’s liabilities through legislation or allowing a bulk transfers without individual member consent to a new scheme paying lower levels of indexation and revaluation.
As at December 2015 the scheme had assets of £13.3bn and liabilities, based on running on with a solvent sponsoring employer, of around £14bn, giving it a deficit of around £700m on a technical provisions basis. But it has a £1.5bn deficit on a Section 179 basis, the cost to buy out benefits equivalent to the PPF. The full buyout deficit is estimated to be around £7.5bn.
The Government believes no buyer would take the company with this level of liability, putting 4,000 jobs in Port Talbot at risk. The scheme has 130,000 members.
Pensions and Lifetime Savings Association chief executive Joanne Segars says: “There’s clearly a strong need for the Government to help save Tata Steel’s UK operations. While we recognise the role the pension scheme plays in this situation we also urge the Government to be alert to the fact that their actions in this issue could affect not only the members of the British Steel pension scheme but also the millions of other UK savers in defined benefit pension schemes. The Government must think this over most carefully and we will be glad to work with them on this issue. Trustees play a crucial role in safeguarding the interests of scheme members and that protocol must be maintained in any reform.”
Lincoln Pensions managing director Richard Farr says: “The proposed and unprecedented plan to move the Tata steel members’ pensions increases from RPI to CPI is another reality check of the real pressure faced by companies who are trying to stay afloat and at the same time honour previous benefit promises.
“The archaic legislation around pension promises is not fit for purpose for companies who are needing to restructure. Lessons being learned from the BHS enquiry and Frank Field’s noticeable frustration with the market’s inadequate response to that organisation’s demise must lead to a reassessment of what tools are in place to protect members interests, but at the same time allowing the companies that should be paying those promises, not the PPF, to survive. Worries over precedents should be dealt with by the appropriate regulation. That is what TPR is there for.”