The Pensions Regulator (TPR) has moved to reassure pension scheme members who face losing their benefits under the new British Steel Pension Scheme (BSPS).
In a letter to Work and Pensions committee chair MP Frank Field, Lesley Titcomb, chief executive of the TPR, said that “is important to note that the new BSPS is not a foregone conclusion”.
Mr Field, 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).
But while the regulator's approval suggested the deal had been done and dusted, in the letter to Mr Field, Ms Titcomb said: “Certain qualifying criteria, designed to safeguard members’ benefits by ensuring TSUK is able to support the New BSPS over the longer term, still need to be met.
“Whether the criteria will be met will not be known until calculations are undertaken once members have made their decision regarding transferring to the New BSPS or receiving PPF compensation.”
She also noted that the “establishment of a successor scheme did not form part of the negotiations in respect of whether the regulator would approve an RAA”.
Ms Titcomb also said that the scheme trustee “has agreed to prioritise the award of discretionary pension increases to members with pre-6 April 1997 benefits should certain funding criteria be met”.
Mr Field questioned the regulator about the indexation of benefits accrued before that date.
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.
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.
Ms Titcomb also said that “an explanation of the circumstances in which the discretionary benefit increases may be provided to members is to be provided shortly in their option packs”.
The regulator has also, in the meantime, raised the issue with the trustee of its refusal to organise ‘buddy’ block transfers - whereby two or more members effect a joint transfer simultaneously.
This was another query in the letter from Mr. Field, which will be now discussed as part of the regulator continued engagement with the BSPS trustee.
In the meantime, Mr Field has also replied to the TPR regarding its letter.
He said that the fact that certain qualifying criteria in the new scheme still need to be met “raises further important questions as to how members' interests will be safeguarded in the new BSPS”.
He asked, for example, who will perform the calculations needed to find out if the criteria are met, and if these calculations will comprise a full actuarial valuation of the new scheme.
Mr Field also asked who will be party to the decision to approve the new BSPS and what will happen to members who opt for the scheme in the event that the New BSPS does not go ahead.
maria.espadinha@ft.com
