The 130,000 members of the British Steel pension scheme have finally been given some certainty over the fate of their retirement income.
The pension scheme, which pays members a guaranteed income in retirement, based on their salary and length of membership, is worth £15 billion and was proving to be a significant obstacle in the takeover of Tata Steel.
Under a new agreement which has been struck between the scheme’s trustees, the company and its employees, the pension scheme will be separated from Tata Steel UK.
Tata Steel will have to make a one-off investment of £550 million into the scheme and give it a 33% stake in the firm. It will still have to pay a levy into the pension protection fund (the so-called pensions lifeboat) however it will not be directly responsible for managing the pension.
The deal sought to safeguard the retirement incomes of members without putting the business or jobs at risk. Currently Tata Steel employs 8,000 workers in the UK, 3,500 of whom are at the steelworks in Port Talbot in Wales.
As a result, all members will see a reduction to future pension increases, but there won’t be any reductions to lump sums already accrued.
Those members that do not want to join the new scheme will have the opportunity stay where they are and eventually be transferred into the PPF. Funded by a levy on all its member schemes, the fund protects the retirement incomes of the victims of failed final benefit pensions, although benefits are usually reduced.
‘Members should be pleased’
Commenting on the result of the deal – which is known as a regulated apportionment arrangement (RAA) – Tata Steel’s group executive director, Koushik Chatterjee, says: “Considering the continued challenges in the global steel industry as well as the uncertain global politico-economic environment, the RAA presents the best possible structural outcome for the members of the British Steel Pension Scheme and for the Tata Steel UK business.”
Steve Webb, director of policy at Royal London and former pensions minister says that members should be pleased with the outcome of the negotiations. "This deal represents a good balance between trying to save steel jobs and trying to protect members' pensions. Over the course of this saga some much more unacceptable options have been considered. One would have been to change pension law just for the benefit of this scheme. Another would have been to create a new 'headless' British Steel Pension Scheme without a sponsoring employer.”
He adds: “It is good that both of these have been rejected. It is important that scheme members receive clear information about the options now open to them and are given the advice and guidance that they need to make the choice as to whether to join the new pension scheme or remain in the existing scheme and eventually have benefits paid by the PPF.”