Following recent changes to the British Steel Pension Scheme (BSPS) over the last year, our adviser and Pension Transfer Specialist Warren Attewell provides an insight into his understanding of the scheme.
The British Steel Pension Scheme
Tata Steel Ltd is the sponsoring employer of the British Steel Pension Scheme. The Scheme has 130,000 members consisting of current and past steelworkers. For some time now Tata has been attempting to remove itself from the responsibilities for the BSPS and its £15bn or so of pension liabilities. Last year Tata made it clear this needed to happen if operations in Port Talbot were to continue, and that Tata Steel UK (TSUK) could not continue to rely on unlimited ongoing support from the parent company. Although the scheme is well funded, its size and relative risk to Tata Steel was the problem.
To achieve separation Tata Steel is seeking approval of a Regulated Apportionment Arrangement (RAA). This is an established statutory process used to separate an employer from its pension scheme, in circumstances where the employer would otherwise become insolvent. An RAA requires the agreement of the Scheme Trustees, the Pension Regulator (TPR) and the Pension Protection Fund (PPF).
Under the proposed deal, Tata Steel has offered to pay £550 million into the BSPS as well as provide it with a 33% stake in TSUK. A new scheme would then be set up to replace the BSPS with lower annual increases, but will offer better benefits than the PPF.
After months of negotiations between Tata Steel, the BSPS, the TPR and the PPF, an agreement is imminent.
A pension scheme that has an RAA would normally go into a PPF assessment period straight away.
However, the Trustees believe that the BSPS has enough assets to secure better and fairer outcomes by delaying the start of the PPF assessment period so that members are given a choice between staying in the BSPS (and so receive PPF benefits) or transferring to the new scheme that would provide modified benefits.
Deferred members of the BSPS are now faced with difficult choices. If Tata Steel Ltd is granted permission to separate from the Scheme, we expect members to be faced with three options:
- Join the new modified scheme (BSPS2),
- Join the PPF,
- Or transfer out completely.
Our company has a close alliance with Tata Steel, in particular, with members at the Orb Steelworks. We have previously dealt with many retirees who invested their retirement lump sums and therefore we have many existing clients with preserved benefits held within the BSPS. We are sympathetic to the members’ needs and aspirations but will consider each member on an individual basis. We will only provide a recommendation after conducting several meetings with both the member and spouse – including full fact-find, budget planner, investment risk profile, capacity for loss, scheme analysis and cash flow modelling.
If you are a deferred member of the British Steel Pension Scheme and would like to discuss your options with an adviser, please get in touch.
THIS BLOG DOES NOT CONTAIN FINANCIAL ADVICE. INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF THE BRITISH STEEL PENSION SCHEME.