An overview to recent debates on the British Steel Pension SchemeJump to full report >>
In March 2016, Tata Steel UK announced that they had lost £2 billion in five years, and that Tata was unable to continue covering these losses. Tata said that it would explore all options for restructuring the UK steel business, and wanted to move quickly to secure a sale of Tata Steel UK. This raised questions about the future of the British Steel Pension Scheme (BSPS) which was in deficit. The Government said that, given its size, it was likely that as part of the sale, it would need to be separated from the business. (DWP factsheet: Consultation on the British Steel Pension Scheme)
Consultation on changes to scheme rules
In May 2016, the current Government launched a consultation on what might be done to help the British Steel Pension Scheme (BSPS) in the wider context of efforts to protect the UK steel industry. This included a proposal from the trustees to be allowed to reduce indexation and revaluation on future payment of accrued pension rights. For them to be able to do this, the Government would need to amend the ‘subsisting rights provisions’, which prevent detrimental changes to accrued rights without member consent (Pensions Act 1995, s67). The trustees said the proposals were in the best interests of the Scheme membership. However, some commentators expressed concern at the wider implications of undermining the principle that pension promises, once made, cannot be changed retrospectively.
On 16 May 2017, the Pensions Regulator (TPR) reported that the key commercial terms of a Regulated Apportionment Arrangement (RAA) had been agreed. It would continue to work with Tata Steel UK and the trustee “in respect of the proposal to offer members an option to transfer to a new scheme sponsored by TSUK, which may occur should the approval to the RAA be granted, or stay in the BSPS and receive PPF compensation” (TPR statement, 16 May 2017). On 11 August 2017, TPR said it had given initial approval to a proposal from Tata Steel UK to restructure the BSPS through an RAA. As part of this, the BSPS would receive £550 million from the Tata Steel Group, “significantly more than it would receive in insolvency, and a 33% equity stake in TSUK.” Following the completion of the RAA, scheme members would be offered the choice to either transfer to a new scheme (if it meets certain qualifying conditions) which will be sponsored by TSUK, or remain in the existing scheme which will transfer to the PPF. (PN17-48, 11 August 2017) The deal received formal approval from TPR on 11 September 2017.
All scheme members had until 22 December to choose between two options:
People with more than a year to go before pension age (65) also had the option to transfer their rights out.
In a report published in February 2018 the Work and Pensions Select Committee described the member communication plan as "woefully inadequate" and said the Financial Conduct Authority (FCA) had done "too little, too late" to address concerns about the suitability of advice given to those considering a transfer.
The Work and Pensions Committee recommended a “review of the information and support provided to BSPS members as part of the Time to Choose exercise, incorporating feedback from the scheme members.” The report of the independent review by Caroline Rookes, published in January 2019, said it was important to recognise that over 80% of BSPS members had made an active choice, which was a good result. In addition, the majority of respondents to a survey were happy with the choice they had made and the information they received. The main area of concern was the experience of those who decided to take a cash transfer. The review identified two groups:
It made a series of recommendations to help savers make the right decision in future about whether to transfer their pension pots from a defined benefit (DB) scheme. In a joint statement in response to the review, the FCA and TPR said they would consider “act on the report’s recommendations including where appropriate having discussions with the Department for Work and Pensions (DWP).”
Nick Smith MP has an adjournment debate on the issue scheduled for 10 April 2019.
For more on the legal framework for DB transfers, see Library Briefing Paper CBP 8382 Pension freedoms and safeguarded benefits (April 2019).
Commons Briefing papers CBP-8288
Author: Djuna Thurley