Defined Benefit  

Carillion and British Steel dump 66k in pensions lifeboat

Carillion and British Steel dump 66k in pensions lifeboat

The Pension Protection Fund (PPF) is predicting its membership will increase by 52 per cent by 2020/21, compared to current levels, greatly due to the Carillion and British Steel cases.

By 2020/21, the pensions lifeboat is expecting to have 381,000 members, 86,000 more than the previous year.

According to its strategic plan, the PPF has assumed that that 39,000 members from the British Steel Pension Scheme (BSPS) and 27,000 members from Carillion enter the lifeboat in 2020/21 and that it will receive £2.5bn and £2.0bn in assets from these plans, respectively.

When compared to the forecast for 2017/18 number of members, the PPF will take in 131,000 new individuals.

The PPF said: “These figures assume that the BSPS and the Carillion pension schemes enter a PPF assessment period in March 2018, and a proportion of the members transfer in to the PPF in year three of the plan.

“Whilst the BHS pension scheme is expected to transfer in late 2018, the number of members who have chosen to remain in that scheme and transfer in to the PPF is low, as expected.”

The context of how the two schemes will end up in the PPF are different – Tata Steel restructured its pensions scheme through a regulated apportionment arrangement (RAA) approved by The Pensions Regulator (TPR), while Carillion collapsed in January, triggering the pensions lifeboat protection.

The pensions lifeboat warned, however, that it “is extremely hard to forecast factors such as the number of employer insolvencies, especially given the current high level of uncertainty around the economy and the implications of Brexit”.

The PPF added that these assumptions are used as an indicator only, and that volumes will be revised each year as new information is made available to the fund.

The increase in the members’ numbers also means that the pensions lifeboat assets will increase, by 26 per cent over three years, according to the forecast.

Nevertheless, the fund is planning to reduce direct per member service costs by 17 per cent in real terms, as it intends to make an efficient use of its resources, it said.

There isn’t any forecast for changes in the levy charged to defined benefit (DB) schemes, which is set at £550m for 2018 and 2019, 10 per cent less than the previous year.

This levy is one of the ways that the PPF funds the compensation payable to members of schemes that transfer to the pensions lifeboat.

It is payable by all UK DB pension schemes whose members would be eligible for PPF compensation if the scheme employer becomes insolvent, and there aren’t enough assets remaining in the scheme to pay benefits at PPF levels of compensation.

maria.espadinha@ft.com