Out-Law News 2 min. read
31 May 2016, 3:04 pm
Robin Ellison of Pinsent Masons, the law firm behind Out-Law.com, pointed out that the scheme itself was in "pretty good shape" when compared to most other DB schemes. The scheme, which has around 130,000 members, has around £13.3 billion of assets to approximately £14bn in liabilities, assuming that there is a sponsoring employer backing it, according to UK government figures.
Among the proposals currently being considered by the UK government are changing the basis of the scheme's annual increase to the Consumer Prices Index (CPI) measure of inflation, rather than the Retail Prices Index (RPI) measure hard-wired into the rules. This would require government legislation, as it is not usually permitted to reduce the future benefits available under a pension scheme without the individual consent of a meaningful number of members.
The trustees of the scheme have presented the proposals to the UK government as an alternative to placing the scheme into the Pension Protection Fund (PPF), the 'lifeboat' fund which provides compensation to members of DB pension schemes whose employers have become insolvent and are no longer able to pay the pensions they have promised. Tata Steel, the Indian company which took over the now-privatised British Steel, is currently seeking a buyer for its struggling UK operations.
Ellison said that although that the aims of the consultation, which it has been argued will save jobs by allowing Tata Steel UK to be sold unburdened with its pension deficit, were "understandable". However, its timing was "unfortunate, given that other companies, with equal calls for help, have also gone into administration".
"It might perhaps be better to either reform the terms of PPF entry so that trustees could generally, as part of their functions, restructure a scheme if it is in the best interests of their members," he said. "The concern about unscrupulous employers taking undue advantage is overdone, and the courts and the government have been unhelpful so far in allowing trustees to be trustees. The consultation paper imposes limits, making reforms available only in practice to the very biggest schemes - that seem unfair to members of smaller schemes."
"The case of the British Steel Pension Scheme also shows the absurdity of measuring scheme liabilities in relation to current discount rates. If the scheme was left as a 'zombie' scheme, the chances of it being able to pay full pensions are quite high and the law should give the trustees the chance of doing so. This would also reduce the burdens on the PPF," he said.
The PPF, which is funded by an annual levy paid by eligible DB pension schemes, provides a certain amount of compensation to members of those schemes when the employer suffers a qualifying insolvency event, and where there are insufficient assets in the pension scheme to cover the amount of compensation that the PPF would pay. When a DB scheme is transferred to the PPF, those with pensions already in payment will typically receive 100% of the benefits promised while those that have yet to retire will usually receive 90% of their promised benefits subject to an annual cap.
Of the 130,000 members of the BSPS, around 84,000 are already receiving their pensions. Around 14,000 remain active and paying into the scheme, while around 32,000 are 'deferred' members who are no longer employed by Tata Steel UK, but are below the scheme's normal pension age and therefore do not yet qualify for their benefits.
The proposals set out in the government's consultation have the full backing of the scheme trustees, according to an announcement on Tata Steel UK's website.
The government said that any changes introduced would apply solely to the BSPS, given the "very specific circumstances" surrounding the sale of Tata Steel UK. It is consulting on whether the company’s proposals are "workable" and, if so, what safeguards should be included to prevent the company from making any further changes to member benefits until 23 June.