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".
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.
"An indication of the security of members' benefits is how the amount of assets compares with the cost of buying insurance policies that would secure all members' benefits in full.
"The 2018 valuation is expected to show that the scheme has a shortfall on this buy-out basis, even though it has a surplus on a prudent ongoing basis."
They said that although there was no reason to expect TSUK would become insolvent in the foreseeable future, the trustee could not ignore the risk of that happening.
They added the results of the 2018 valuation would be communicated to members in the early part of 2019.
Al Rush, principal at Echelon Wealthcare, who has worked closely with members of the BSPS, said it was understandable members thought they were entitled to receive a portion of the £2.2bn surplus as many who transferred out were originally faced with an 8 per cent haircut, which was then reduced to 5 per cent after Tata gave £554m to the fund.
He said: "The men believe they have a right to that 5 per cent. In my opinion reimbursing the members who have already exited would be wrong.
"But those who may have wanted to leave BSPS and who were thwarted due to any number of reasons, least of all a hopeless administrative approach by the trustees, may at least now be extended discretionary increases, if the funding situation holds up.
"It is vital that the new scheme continues to be healthy following its regulated apportionment arrangement.
"Whilst I appreciate the seething anger with many steelworkers, it is now the role of the trustees to explain to one and all exactly what the surplus really means, and what it means to members and deferred members.
"It must learn from its previous mistakes, leave its ivory tower and demonstrate that it really does exist for the betterment and benefit of the members."
carmen.reichman@ft.com
