Thousands of steelworkers could receive a boost to their pensions after a £2bn insurance deal has been agreed, which lifts the scheme out of the lifeboat fund.
Insurance provider Pension Insurance Corporation (PIC) has agreed to buy out the old British Steel Pension Scheme (BSPS) and take on responsibility for more than 30,000 pensions.
The deal means all members’ benefits have now been secured at or above their current PPF levels of compensation with PIC, though the exact outcome for each member will not be known until the buy out occurs towards the end of 2021.
Until then the scheme will remain within its PPF assessment period and continue to be protected by the PPF.
Jonathan Hazlett, managing director of Open Trustees, which runs the scheme, said: “Whilst the PPF provides a valuable safety net and a significant level of protection, many members will now receive higher benefits than they might otherwise have expected had the scheme entered the PPF.
“Old BSPS members can take comfort that their benefits will be looked after by an insurer, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority, as well as being committed to the highest levels of customer service.”
The old BSPS had entered the Pension Protection Fund (PPF) in 2018 after former owner Tata Steel restricted its UK operations.
During the scheme’s PPF assessment period in March of that year it became apparent that it might be possible to buy out members’ benefits at or above PPF levels of compensation.
Currently, compensation payments are 90 per cent of benefits for those who have not reached retirement age, but a cap is applied.
The PPF spent more than two years investigating the possibility of a buy out and in April 2020 members were first informed about a deal after the lifeboat scheme concluded it could “ultimately result in a better outcome for members than they might otherwise have been expecting”.
If PIC were to fail it would also be covered by the Financial Services Compensation Scheme.
Uzma Nazir, head of origination structuring at PIC, said: “This is a significant transaction, guaranteeing the benefits of the more than 30,000 pension scheme members who have faced a long period of uncertainty about the level of their benefits, and providing many with an uplift over PPF levels.
“We are delighted to have been able to work so closely with the trustee and Barnett Waddingham and ultimately deliver what was required in the biggest and most significant transaction of the year.”
The British Steel scheme has been embroiled in turmoil for several years after members of the BSPS were asked to decide what to do with their pensions as part of a restructuring process in 2017.
As a result about 8,000 members transferred out of the old scheme, with transfers collectively worth about £2.8bn.
But concerns about the suitability of the transfers were soon raised leading to an intervention from the FCA, which resulted in 10 firms - the key players in the debacle - stopping their transfer advice service.