Regulator publishes British Steel section 89 report

As part of the separation the BSPS has received £550m from Tata Steel together with a 33 per cent equity stake in Tata Steel UK.

The report doesn’t particularly address the issue that a lot of people are concerned about, which is that British Steel members didn’t really know what to do

Chantal Thompson, Baker McKenzie

The report shows that the BSPS held shares in Tata Steel Nederland BV, which the trustee had negotiated as contingent support.

“We had known that they had some security over a Dutch asset elsewhere in the group, but we didn’t know exactly what the nature of that asset was,” noted Martin Hunter, principal at Xafinity Punter Southall.

He said he had strongly suspected it was that security that was driving the £550m cash payment.

“I think that if they hadn’t had that claim, it seems likely they… wouldn’t have been able to get very much at all as cash mitigation,” Hunter said.

Contingent assets can be very valuable, as long as trustees take time to negotiate and plan in advance.

The section 89 report shows that the regulator made it clear it would require a full analysis of the various alternative options from all parties before accepting that an RAA was the only alternative to insolvency.

The watchdog has stipulated that it will only agree to an RAA if very stringent criteria have been met.

There have been calls for more flexibility, and the Work and Pensions Committee has previously proposed relaxing the requirements, which currently state that insolvency must be inevitable within 12 months for an RAA to be approved.

But Hunter pointed out that “if you’re looking at a longer time period, could you really be certain about insolvency?”

Regulator obtained independent advice on New BSPS proposal

At the same time as the RAA application, the proposal for a successor scheme, the New BSPS, was made. 

In its report the regulator said that, given the potential size of the New BSPS, the watchdog made “the exceptional decision to obtain our own independent actuarial and investment advice”. It also considered the risks to the Pension Protection Fund and its levy payers.

In January, the BSPS closed a consultation that gave members the option of choosing between the New BSPS, which provides the same benefits as BSPS but with lower future increases, or remaining with the current BSPS and entering the Pension Protection Fund.

Eighty-six per cent of respondents elected to switch to the New BSPS, and 14 per cent chose to enter the PPF. The consultation received responses from 97,000 of the scheme’s 122,000 members.

Member comms were reviewed

Advice given to BSPS members to carry out transfers against their own interests has been under intense scrutiny in recent months.

The last few pages of the regulator’s report said that reducing the benefits members have already built up via a transfer to a new scheme “is a step which trustees should approach with the utmost caution, even if members consent”.

The watchdog added that it has been in close contact with the trustee regarding member communications, has reviewed the documents members were given, and has also “urged the trustee to talk to members about the importance of obtaining independent financial advice”.

Chantal Thompson, partner in law firm Baker McKenzie, said in the BSPS case members have been “left with a really difficult decision”.

Thompson noted that the report’s focus is mainly on the RAA and “doesn’t particularly address the issue that a lot of people are concerned about, which is that British Steel members didn’t really know what to do and weren’t really supported in making decisions” about going into the PPF, the New BSPS or taking a transfer value.  

The purpose of the section 89 report is to set out the background to the regulator’s decision-making process, including how it assessed the application for an RAA, and the proposal for a new scheme.

Dealing with advice

While Thompson said that the level of commentary on transfers and scams “is all sort of tucked in at the end” of the report, she accepted that it was not necessarily the regulator’s fault, given that it “doesn’t have powers to deal with so-called financial advisers”.

Richard Farr, managing director of covenant specialists Lincoln Pensions, agreed that members are vulnerable when it comes to unscrupulous financial advisers.

However, he pointed out it was up to the Financial Conduct Authority to make sure adviser regulation was effective.

The report states that the Pensions Regulator has worked with the FCA and The Pensions Advisory Service “to ensure that affected members were made aware of the appropriate sources of advice and guidance in order to help them consider their options”.

As a result of the FCA’s ongoing work related to financial advice that BSPS members have been receiving, as of January 12, a total of eight firms have stopped advising consumers on pension transfers.