Defined Benefit  

British Steel new scheme pays out £600m in old transfers

British Steel new scheme pays out £600m in old transfers

Delays of several months with the processing of British Steel transfers have impacted the new pension scheme, which paid out £600m to members of the old final salary plan.

In the scheme’s 2018 actuarial valuation, published yesterday (April 11), it was revealed these transfers were due to be paid from the old scheme, which didn’t happen when the members transferred to the new pension plan in March 2018.

BSPS members were asked to decide by December 2017 whether to move their defined benefit pension pots to a new plan, BSPS II, or stay in the existing fund, which was then moved to the Pension Protection Fund as part of a restructuring of pension liabilities.

About 8,000 members transferred out of the old scheme by October last year, with transfers collectively worth about £2.8bn - which already take into account these £600m.

But several steelworkers reported delays in the transfer process, with several complaints reaching the Pensions Ombudsman

Concerns about the suitability of transfers from the British Steel scheme have also been raised, and 10 advice firms stopped giving transfer advice as a result.

Claims against one of these firms, Active Wealth - which went into liquidation in February 2018, have already arrived at the Financial Services Compensation Scheme.

And there are still concerns about the advice given to the remainder steelworkers who transferred out. 

FTAdviser reported in January that Stephen Kinnock, MP for Aberavon, was increasingly concerned about bad advice from other advisers other than Active Wealth.

The new scheme's actuarial valuation showed a surplus of £668m on technical provisions, which represented a funding level of 106.3 per cent.

But on a buy-out basis – the cost for an insurer to take on the liabilities of the scheme – the funding level was 90 per cent.

According to the scheme’s actuary, Willis Towers Watson, the £600m paid in transfers, which occurred after the BSPS valuation, would have improved the buy-out funding level to 92 per cent.

This reflected the fact these transfer values were paid out at less than the cost of insuring the equivalent deferred pension.

One of the conditions of the new scheme was that it didn't provide increases to benefits accrued before 1997, which happened in the previous plan, and it used the consumer price index for indexation, instead of the retail price index, which was used by the old scheme.

But there is an agreement that additional payments can be made to members if certain circumstances are met, such as an unexpected surplus being disclosed by the 2021 actuarial valuation or if the buy-out funding level reaches 103 per cent.

There was a third option related to any income driven from the scheme’s shares in Tata Steel UK – the scheme acquired a 33 per cent stake as part of the agreement for its creation – but this is no longer in place, since a debt for equity swap took place.

This issuance occurred in preparation for the proposed joint venture between Tata Steel Europe and Thyssenkrupp, as Tata Steel intends to increase further its financial support to TSUK, the trustees said in a newsletter.