Sajid Javid’s plans to revamp the British Steel pension fund to make Tata Steel more attractive to buyers is running into resistance in the Treasury and Department for Work and Pensions.
The Financial Times revealed on Thursday that the business secretary is trying to secure backing for a plan that could shave £2.5bn off the scheme’s long-term liabilities, allowing it to be ringfenced and therefore not the responsibility of a buyer.
The £15bn fund, which has 133,000 members, has an estimated £485m deficit, making it one of the largest obstacles to the sale of Tata’s 11 UK steel plants.
Mr Javid’s proposals involve changing the annual uplift in pensions provided to members of the scheme from the RPI inflation index to the CPI index, in line with changes to public sector pensions announced in 2010.
Mr Javid has the sympathy of David Cameron, who is keen to find a way to save primary steelmaking in the UK, but the plan has prompted concerns elsewhere in Whitehall. George Osborne, the chancellor, and Ros Altmann, pensions minister, are understood to be nervous about the legislative changes required to underpin the changes.
At present the 1995 Pensions Act says trustees cannot change pensioners’ uplift from RPI to CPI without an actuary certifying “equivalence” between the old and new terms. That clause will need to be amended through a statutory instrument, which would prompt concerns about setting a precedent for hundreds of other pension funds.
Some 4,804 pension schemes have a black hole with a combined deficit of £309bn, recent figures show.
Unite, the union, said: “We would warn rogue employers against using this unique set of circumstances as an opportunity to dodge their pension responsibilities and leave their own employees in the lurch.”
John Ralfe, an authority on pensions, said the proposals would set a dangerous precedent that would represent a “dismantling of defined benefit pension schemes in the UK”.
Mr Ralfe is advising the Commons select committee on work and pensions for itsinquiry into BHS. He has written to Frank Field, chairman of the committee, urging him to open a new inquiry into the steel pension fund.
“If the legal changes were successful it would drive a coach and horses through the fundamental principle that pension benefits, once earned, cannot then be reduced,” he wrote.
Source: Next.FT