August 11
Tata Steel Pensions Deal

This morning I was asked to appear on Radio 4's Today programme, to discuss an imminent announcement about the future of the British Steel Pension Scheme (the BSPS). A series of press releases duly appeared at lunch-time today.

For the most part the statements from the Pensions Regulator (TPR), Tata and the Trustee of the BSPS simply reiterate the statements Tata made when announcing their May 2017 results. The only real development is therefore that the deal has now been signed off by the Pensions Regulator.

You can read my previous blog on the May 2017 announcement of the agreement in principle here:

The lack of new information in the latest press releases mean that some big questions regarding the structure of this deal remain unanswered. For example:

  • What are the qualifying conditions which apparently need to be satisfied before TSUK will agree to establish the new pension scheme? These seem to relate to the funding level and size of the new scheme. Presumably the former can be addressed with sufficient cuts to benefits, but does the latter condition perhaps mean that the new scheme will only be set up if a sufficient proportion of the 130,000 members choose either to go into the PPF or to take a transfer value, rather than joining the new scheme? It is also interesting to note that the Chair of Trustees has stated that "the Trustees expect that the qualifying conditions will be met", while in contrast Tata say "there remains no certainty with regards to the eventual existence, size or form of the new scheme and the funding position and membership of any new scheme is still dependent on the results of the proposed voluntary membership transfer exercise".
  • What will happen to the 33% equity stake being provided to the BSPS if the merger with Thyssenkrupp goes ahead? My expectation is that this equity stake will ultimately be held by the PPF, rather than transferring to the new pension scheme, although this has not been confirmed. What will the PPF's interest in the new joint venture be, and will Thyssenkrupp be happy with the PPF having a minority interest?
  • What level of ongoing support will TSUK provide to the new pension scheme? In most Regulated Apportionment Arrangements the link between the sponsor and the pension scheme is broken, but this deal is unusual in that TSUK will support the new scheme. The level of support available in future may depend on the structure of the expected joint venture with Thyssenkrupp.
On first read the press releases also do not give any detail on the benefits to be provided in the new pension scheme, other than highlighting that they will be better than PPF compensation for most members. (It is most members rather than all members due to around 6,000 "high / low" members potentially being better off in the PPF, as described in my previous blog: However, there is some wording on the BSPS website which suggests that the cuts to pension increases will be severe for some members.

The BSPS website states that "Details of the modified benefits were outlined in the Trustee's letter to members of 26 May 2016." This letter proposed reducing the pension increases payable to members in payment to the minimum levels allowed under legislation. For pension built up before 5 April 1997, and in excess of the "Guaranteed Minimum Pension", there is no requirement to provide increases under legislation. 

The reductions to pension increases would mean that most current pensioners would only be marginally better off than if they received PPF compensation. However, the increases would be substantially less than those currently promised in the BSPS, as pensions currently increase with the Retail Prices Index (RPI). Over the long term RPI is currently expected to be around 3.5% pa. While the exact impact for an individual will depend on their age, how long they live, and when they built up their pension, a 60 year old member with all their service before 1997 would be losing around 40% of the value of their pension as a result of not receiving RPI inflation increases.

I will keep my eyes peeled for some more information in the coming weeks about the remaining unanswered questions!


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