The government has launched a consultation into potential government support options for the British Steel pension scheme.
The defined benefit scheme has approximately 130,000 members, with assets and liabilities totalling around £14 billion.
The consultation aims to determine the best course of action, if any, that the government could take as part of its broader support measures for the UK steel industry. It also aims to provide clarification for members of the pension scheme while supporting the Tata Steel UK sale process.
Under a sale agreement, the pension scheme may be required to be separated from the business and enter the Pension Protection Fund (PPF).
The pension scheme does not have the necessary funds to pay all of the scheme members the pensions they were originally promised, but it does have the funds to pay the majority of members the same as or higher than the PPF, which caps compensation payments at £33,678 annually.
This course of action would not cap higher pensions but would reduce members’ pension payments by reducing the amount by which the pension was set to increase in the future.
To implement these changes, the government would need to amend pension protection laws to enable the trustees to adjust the scheme rules without gaining the consent of members.
The consultation will discuss the proposed changes put forward by Tata Steel and the pension scheme trustees, analysing whether reducing the amount of pension promised to employees is a more workable option than having pension scheme members enter the PPF.
The government is consulting on these proposals to ensure that it is in the best interests of scheme members and also that it will not negatively impact defined benefit pension schemes more widely.
The consultation closes on 23 June 2016. It is open to responses from the public, including the steel industry, members of the scheme, Tata Steel UK employees, the pensions industry, and employers paying into the PPF.
Allan Johnston, chairman of the Board of Trustees of the British Steel pension scheme, said: “The Trustee of the British Steel Pension Scheme welcomes the government’s decision to consult on changes to the law applying to the scheme.
“The Trustee will be writing to members over the coming days to make clear its belief that, with government support, it should be possible to modify benefits so as to allow the scheme to remain outside the Pension Protection Fund indefinitely and on a low-risk basis. Although this would entail future pension increases being cut back from their current levels, benefits would be more generous than those provided by the PPF for the vast majority of scheme members.
“The primary focus of the Trustee is to secure the best outcome for scheme members. While the current pension protection framework provides a valuable safeguard for pension scheme members generally, the circumstances of the British Steel pension scheme are such that its assets could be better used in paying member benefits than potentially swelling a PPF surplus or insurance [firms’] profits.”