The Pensions Regulator (TPR) is being questioned about members losing their benefits under the new British Steel Pension Scheme (BSPS) by Labour MP Frank Field.
The chairman of the Work and Pensions select committee wrote to the regulator expressing concerns about the restructuring of Tata Steel’s defined benefit (DB) scheme.
The regulator gave its formal approval to this operation on 12 September, which was done through a regulated apportionment arrangement (RAA).
In this case, the BSPS has received £550m from the parent Tata Steel Group, significantly more than it would receive in insolvency, and a 33 per cent equity stake in Tata Steel UK (TSUK).
BSPS members now have two options: either transfer to a new scheme (if they meet certain qualifying conditions), which will be sponsored by TSUK, or remain in the existing scheme which will transfer to the Pension Protection Fund (PPF).
However, Mr Field has received “numerous representations from BSPS members who have serious concerns about the proposal, in particular relating to the indexation of benefits accrued before 6 April 1997”.
In the new BSPS, increases will be set at the statutory minimum, which means that there will be “no increases for pension benefits accrued before 6 April 1998”, Mr Field said.
Increases of benefits accrued between 6 April 1998 and 5 April 1997 will only apply to the guaranteed minimum pension element, subject to a 3 per cent cap, he added.
He said: “It has been estimated that the switch from [retail price index] RPI-indexation in the old BSPS to the statutory minimums offered by the new BSPS could result in a 60-year-old scheme member with all their service pre-1997 losing around 40 per cent of their pension.
“Many scheme members clearly feel that they are being railroaded into a choice between this outcome and an even worse deal in the PPF, which provides no increases at all in respect of pre-1997 accrued benefits.”
Mr Field also raised an issue related to the term under which members may obtain a cash equivalent transfer value (CETV).
He said: “It has come to my attention that the BSPS is refusing to organise ‘buddy’ block transfers, whereby two or more members effect a joint transfer simultaneously.
“I understand that such an option could allow scheme members who joined the scheme before 2006 to transfer out while retaining their ‘protected pension age’, which gives them access to benefits from the age of 50, but that BSPS has ruled out this option on grounds of administrative complexity.”
The proposal for separating BSPS was first presented in May, and Tata Steel has been waiting for the regulator's approval since then.
Tata took on BSPS when it bought Corus in 2007 for £6.2bn, and the funding deficit has been an increasing problem.
The separation from the scheme could remove the last hurdle to a merger of the group’s European steelmaking operations with those of German rival ThyssenKrupp.
maria.espadinha@ft.com
