The trustees of the British Steel pension scheme have asked its 130,000 members to accept scaled-back retirement benefits to avoid having to use the pensions lifeboat.
The trustees have been looking for a way to stop the scheme being folded into the pension protection fund (PPF), which would result in benefits being hacked back.
They have now issued their formal response to a government consultation about a modified pension deal that would cut benefits but bypass the need for the PPF.
The trustees proposed a series of modifications to the scheme that they said would make it self-sufficient, including a proposal that future increases in payments would be limited to the minimum required by law.
Members were also advised to accept a change in the way increases to deferred benefits were calculated, using the CPI measure as opposed to the higher RPI.
The trustees said it would have the power to reinstate pension increases “if and when it is financially safe to do so”. They also said no surplus that built up in the scheme, which runs at a £700m deficit, would be paid to any “sponsor or employer” under any circumstances.
The cost of funding the scheme has been a sticking point in efforts to save jobs in the industry by finding a buyer for Tata Steel’s assets after it announced plans to pull out of the UK.
The trustees’ proposals are designed to save the scheme from the PPF in the event that a buyer cannot be found or will not take on the pension liabilities.
Allan Johnston, the chair of the trustees, said: “Although the PPF is an important safeguard for pension schemes generally, we believe that better outcomes can be achieved for our members by staying out of it. If our proposals are implemented the vast majority of members will be better off than going into the PPF,” he said.The trustees said the scheme should be kept out of the PPF for at least 10 years and could avoid it indefinitely if its proposals to reduce pension increases were accepted.
If the scheme falls into the PPF, 58,000 members would face benefit reductions of 10% or more, while the remaining members would see future increases scaled back.
Johnston said trustees hoped to avoid this with its less drastic proposal, which would require the government to change the law to exempt the scheme from legislation that protects the pension payments. “We have asked the government to remove a legislative obstacle to achieving this outcome,” he said.
Tom McPhail, the head of retirement policy at Hargreaves Lansdown, said the changes “may well be the right thing to do for the employees of British Steel and for their pensions. They may also allow the business to achieve a sustainable future as a going concern”.
He cautioned, however, that a change in the law to allow the proposals could backfire if struggling firms such as BHS also then look for ways to wriggle out of their pension obligations.
“For the government it will be hard to ringfence this decision and to avoid this case being invoked in the future by other businesses in a similar position,” he said.
“In light of issues being raised in the context of the BHS pension scheme, there is a strong argument for a considered review of the pension scheme funding, of trustee responsibilities and of trade-offs between guarantees and costs in final salary pension schemes.”
The government’s consultation on solutions for the British Steel pension scheme closes on 23 June.
Source: The Guardina