Pensions  

Mineworkers would see little benefit from pension change

Mineworkers would see little benefit from pension change

Members of the Mineworkers Pension Scheme would only get an increase of 54p a week, or £28 a year, if the government changed the surplus rules of the scheme, according to trustees' calculations.

Currently, the government pockets half of excess funds in return for acting as a guarantor of the pension scheme.

But in June several MPs demanded that the government change the rules from its current split of 50:50 to one of 75:25, although this was dismissed by the government at the time.

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In a newsletter to members in July, trustees then showed that changing the sharing arrangement wouldn't leave members substantial better off.

As first reported by FTAdviser’s sister publication Pensions Expert, the latest trustees' calculations show that unless there is a large surplus, "the impact on member pensions would be incremental not transformational”.

Trustees have therefore proposed to protect the members' pensions instead.

 

50/50

75/25

Guaranteed fund surplus

£500m

£500m

Amount used to pay bonuses

£250m

£375m

Amount payable to the government

£250m

£125m

Average weekly pension

 

 

Guaranteed pension

£65

£65

Bonus pension

£19

£19

New bonus pension

£1.09

£1.63

Total

£85.09

£85.63

When British Coal was privatised in 1994, it was agreed the government would act as guarantor for the MPS.

As part of the deal, any surplus is split equally between members and the government.

Over the years, the government’s guarantee has enabled the scheme trustees to adopt an investment strategy that targeted high returns, which have resulted in surpluses.

In 1996 it was estimated the pension fund would generate a £2bn surplus over the next 25 years, but the scheme has performed considerably better than expected.

According to Stephanie Peacock, Labour MP for Barnsley East, since the scheme was established, the government "has pocketed more than £4.4bn, with nearly half a billion more over the next three years planned".

Trustees said protecting bonuses in the future was most relevant for mineworkers.

They therefore proposed to the government that the additional payment should no longer go into ‘standstill’ following 2023 or future valuations.

The MPS has more than 152,000 members, of which some 135,000 are pensioners, the rest are deferred.

The bonus pension is an additional payment provided to members from the good investment returns made on the scheme’s assets, which will depend on the pension fund having a surplus. In case of the scheme having a deficit, the bonuses are put on hold.

Under the trustees' latest proposals, for the average weekly pension the £19 bonus pension could never be reduced and would always be paid in the future.

The trustees said: “Since 1994 there have been five surpluses and three deficits at the three-yearly valuations, so unfortunately a loss or reduction of bonus pensions is a realistic possibility.

“For these reasons, we believe, at this time, that protecting current bonus pensions for the life of the scheme would be of very significant value to members.”

maria.espadinha@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.