A ‘quick fix’ on the British Steel pension scheme to help save jobs at Tata Steel UK could risk undermining the pension security of millions of people, warns Royal London director of policy Steve Webb.
The warning comes as the deadline for bids for Tata Steel UK approaches amidst reports that potential bidders are unwilling to take on the liabilities of the company’s pension scheme.
Business Secretary Sajid Javid is believed to be looking at options which could allow the business to continue under new ownership with the pension fund deficit being reduced in part by scaling back the rights of existing pension scheme members. Measures to reduce members’ rights could include using the generally lower Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) to calculate the level of inflation protection.
Webb argues this approach could set a precedent for fiscally strong employers to attempt to avoid some of their pension liabilities.
The latest official figures produced in May 2016 by the Pension Protection Fund showed that four in five defined benefit pension schemes are currently in deficit (4,804 schemes out of 5,945) and that the collective deficit of all DB schemes stands at £270bn.
Webb says: “The desire to save steel jobs is entirely understandable, but there are huge risks if a ‘quick fix’ for this problem were to undermine the carefully constructed pension protection framework. The pensions of millions of workers and pensioners depend on employers honouring the pension promises that they have made. A deal on Tata must not create a precedent or a loophole which could be exploited by firms keen to walk away from their pension liabilities. Ministers must tread with extreme caution in this area.”