Defined Benefit  

Unions clash with Steel pension trustees over payouts

Unions clash with Steel pension trustees over payouts

Unions have called for a reversal of cuts to the benefits of members of the new British Steel Pension Scheme (BSPS) after it emerged the scheme has a £2.2bn accounting surplus. 

Tata Steel Group, the parent of Tata Steel UK (TSUK), yesterday (16 May) posted a £2.2bn accounting surplus for the British Steel Pension Service for the year ended March.

But the scheme’s trustees said the figure was "irrelevant".

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The National Trade Union Steel co-ordinating committee said any surplus written by BSPS II should be redistributed among the members as it was their money.

But the scheme’s trustees said the valuation, which was done on Tata Steel Group’s accounting standards, was irrelevant for determining the financial health of the scheme, which most likely was not overfunded.

BSPS was separated from TSUK earlier this year through a regulated apportionment arrangement (RAA) to pave the way for a merger with rival industrial group Thyssenkrupp.

Under the agreement British Steel stopped participating in the scheme, which instead received a £554m cash contribution from parent Tata Steel Group and a 33 per cent stake in TSUK.

Members were offered to either transfer to the new scheme sponsored by TSUK (BSPS II), or to remain in the existing scheme, which then transferred to the Pension Protection Fund (PPF).

It was believed at the time TSUK would have entered liquidation without a deal, which would have resulted in all members being transferred to the PPF.

The PPF pays out a maximum of 90 per cent of rescued members' pensions, meaning those not yet retired could potentially get more in the BSPS II, however the benefits paid will depend on each member’s personal circumstances and retirement plans.

A spokesperson for National Trade Union Steel co-ordinating committee said: "It was always expected the new BSPS would start with a significant buffer to enable it to pay out benefits to all members on a low-risk basis. 

"We should be absolutely clear that this buffer is not Tata's money. It is scheme members’ money which is ring-fenced to pay out benefits over the lifetime of the scheme."

The trustee of the scheme said the surplus, which showed the effect of separating Tata Steel from the old BSPS, was calculated using best estimate assumptions in accordance with accounting standards applicable to Tata Steel's own accounts, which were “irrelevant” to the way the trustee looks at the financial health of the BSPS.

The trustees are currently carrying out their own valuation of the scheme, which will be based on "prudent assumptions" rather than "best estimates".

The trustees believe the valuation will show a funding surplus on an on-going basis but this would still amount to a shortfall on a perceived 'buy-out basis', which is the assumption used to evaluate the strength of the scheme's funding position.

They stated: "If TSUK were to become insolvent, the trustee would be required to use the scheme's assets to secure benefits with an insurance company.