The government has reportedly put aside plans to change pensions legislation that would allow Tata Steel UK’s pension scheme to stay out of the Pension Protection Fund according to insiders briefed on the issue.
British Steel Pension Scheme proposed changes to the scheme in June this year following Tata’s decision to put its UK steel business up for sale in March.
People talk about the injustice of reducing people’s pension benefits, but they don’t look at the other potential injustices that we should be balancing
Faith Dickson, Sackers
But the modifications required the government to adjust current pensions law to allow the fund to change scheme rules without gaining member consent.
The adjustments were proposed with the aim of separating the scheme from the company and making it self-sufficient, but the plans have been shelved, the Financial Times reported on Tuesday.
A Department for Work and Pensions spokesperson said: “We consulted on a number of proposals for the future of British Steel Pension Scheme. We are still considering the responses and will respond in due course."
Tata Steel has not confirmed the news, but a spokesperson said that the company “continues to responsibly develop options to identify the best prospects for the future sustainability of its UK operations and the best outcome for members of the British Steel Pension Scheme.”
Tata Steel “awaits the outcome of the government's consultation, and keeping the scheme out of the PPF remains the preferred option of the company and the trustee”, the spokesperson added.
The plan has been shelved for a number of reasons, according to the FT. These include the fact that business secretary Sajid Javid has moved to a different cabinet post, ministers were concerned that the plan was likely to be blocked in the House of Commons, and new proposals have emerged from ThyssenKrupp, the German company in talks with Tata over a tie-up.
Reshaping pension benefits
Faith Dickson, partner at law firm Sackers, said that the news is disappointing. “It was always going to be a big ask to change the law quickly, and although they were just focusing on the steel scheme initially, it clearly had wider ramifications for the industry as a whole.”
What will British Steel's rule changes mean for pensions?
Experts agree the changes being proposed to the British Steel Pension Scheme will impact salary-related pensions more broadly, but differ on whether the long-term effects would necessarily be negative.
“I think that the pensions industry does need to tackle the issue of how we can reshape… members’ benefits in ongoing schemes to make them more sustainable,” she said.
Dickson said the industry needs to “restructure pension benefits in a way that delivers a high percentage of what people are expecting, even if it’s not 100 per cent, rather than just leaving it to the PPF to pick up the pieces in the event of business insolvency”.
She said there was a danger of focusing on how unattractive it is to reduce existing pension benefits while ignoring the potential wider effects of this on the economy and the British population.
"People talk about the injustice of reducing people’s pension benefits, but they don’t look at the other potential injustices that we should be balancing,” she said
Special dispensation
The news would mean that BSPS is “not going to be given some special dispensation to compromise the benefits to make the scheme more palatable, either to a new owner or to make it self-sufficient so that it wouldn’t be a burden”, said Bob Scott, senior partner at consultancy LCP.
Select committee seeks views on expanding regulator powers
The Work and Pensions Committee is to consider amending the powers of the Pensions Regulator as part of its inquiry following the collapse of BHS.
However, “that still leaves open the possibility that the government will conclude that there should be some more widely applicable relaxation of the legislation around indexation that would apply to pension schemes more generally”, he added.
The Work and Pensions Committee is looking at how the environment of defined benefit pension schemes might be changed in light of the BHS and British Steel pension schemes.
Scott said that in the next 12 months, "we may well see some changes in legislation that affect schemes generally”, even though it looks as if there will no longer be a specific law for BSPS.
He added that with no special dispensation for BSPS, “they have to explore their options under the current regulatory framework”.
