Archived news updates
A summary of other recent news updates which may be of interest
Increased requests for transfer value quotations
The Pensions Office is currently experiencing high volumes of requests for transfer and early payment quotations. Special arrangements have been put in place to handle these requests, which are being processed in order of receipt. Transfer value quotations are required to be provided within three months of the Pensions Office receiving a request, however every effort is being made to provide figures earlier than this.
On behalf of the Company and BSPS Trustee, Derek Mulholland Pensions Director commented:“ It is very important scheme members make an informed decision after receiving all the necessary information on the options available and taking appropriate advice. A decision to take a transfer cannot be reversed and should not be rushed. The Trustee expects to be writing to all scheme members with further details in July”.
Trustee Statement - 16 May 2017
In reporting its annual results, Tata Steel has today confirmed that, after prolonged and intense discussions with the BSPS Trustee, The Pensions Regulator (TPR) and the Pension Protection Fund (PPF), the key commercial terms of a Regulated Apportionment Arrangement (RAA) have been agreed in principle between Tata Steel UK Limited (TSUK) and the BSPS Trustee. These terms are in line with the published principles of TPR and PPF. However, the RAA is subject to detailed documentation and formal approval by TPR and non-objection from the PPF. The parties are in positive discussions and are hopeful of reaching final agreement shortly.
The RAA would separate the British Steel Pension Scheme from Tata Steel. It would take effect once agreed conditions are satisfied, including the payment by Tata Steel of an agreed amount of £550 million to the BSPS and BSPS being given a 33% equity stake in TSUK.
TSUK has also agreed in principle that, post RAA, all members and pensioners of the BSPS would be offered an option either to transfer to a new pension scheme sponsored by TSUK offering modified benefits, or to remain in the BSPS and so receive PPF compensation. For it to come into effect, the new pension scheme will be subject to certain qualifying conditions relating to factors such as size and funding level. Should these qualifying conditions not be met, the new pension scheme would not come into effect and all members of the BSPS would receive PPF compensation.
The assets to be transferred to the new scheme would include a proportion of the equity stake in TSUK and would otherwise be invested in low risk asset classes which would be expected to generate cash inflows sufficient to fund the modified benefits with a buffer to cover residual risks.
The BSPS Trustee Chairman, Mr Allan Johnston commented:
“I am pleased that agreement in principle has been reached with TSUK about sponsorship of a modified pension scheme subject to qualifying conditions.
“Although the PPF is an important safeguard for pension schemes generally, the Trustee believes that the BSPS has sufficient assets to offer members the potential for better outcomes by enabling them to transfer to another scheme offering modified benefits. For most Scheme members, these modified benefits are expected to be of greater value than those they would otherwise receive by transferring into the PPF.
“TSUK’s willingness in principle to sponsor a new scheme post RAA, subject to conditions agreed with the BSPS Trustee, paves the way to allowing members to make a choice based on their personal circumstances. Discussions are progressing constructively and we expect to be in a position to communicate the final outcome to members soon.”
Update Letter from the Trustee Chairman – 27 January 2017
I have today written to Scheme members updating them on recent developments in connection with the British Steel Pensions Scheme. A copy of the letter can be found here.
If Tata Steel UK (TSUK) is no longer able to access additional capital from the wider Tata Steel Group for continuation of business the Trustee would have to adopt more risk-averse investment policies that are expected to produce lower investment returns. This means that the next actuarial valuation, as at 31 March 2017, is expected to report a deficit of between £1 billion and £2 billion. TSUK has confirmed that, given its current and projected performance, it does not expect to be able to pay the contributions required to close this deficit.
TSUK has been working with its Trade Unions to progress a transformation plan to improve performance and to make the business sustainable. Before making commitments for the future however, TSUK believes it is necessary to de-risk and de-link the BSPS.
Tata Steel has indicated failure to implement this transformation plan could result in TSUK becoming insolvent and the BSPS would then go into the Pension Protection Fund (PPF).
The Trustee has therefore been in discussions with Tata Steel, the Government, the Pensions Regulator, the Pension Protection Fund and other parties about how to separate the BSPS from Tata Steel in a way that secures better outcomes for members than entry into the PPF.
In May 2016, the Government published a consultation document about different options for separating BSPS from TSUK so that TSUK can avoid insolvency. The Government has not yet made decisions about these options but all of them involve closure to future accrual of benefits.
Closure is therefore necessary to achieve separation, and it would be an inevitable consequence of TSUK insolvency.
If the only alternative is TSUK insolvency, the Trustee would wish to agree separation terms that offer members a choice between staying in the BSPS (and so getting PPF compensation) and transferring to a new scheme that would provide modified benefits. For the vast majority of members and pensioners, these modified benefits would be better than PPF compensation.
If the Trustee is satisfied that TSUK insolvency is otherwise inevitable (as currently seems likely), the Trustee believes that separation in the way outlined above would secure the best outcome for BSPS members.
I should emphasise, however, that this can happen only with the approval of the Pensions Regulator and the Pension Protection Fund and that closure to future accrual is necessary to achieve that outcome.
Further communications will be issued over the coming weeks and months as matters develop.
Member clarification regarding Mr Edi Truell’s offer to “take over” the British Steel Pension Scheme
The Trustee of the British Steel Pension Scheme confirms that Mr Truell made unsolicited proposals regarding the future of the Scheme involving the Truell Charitable Foundation and related entities. The Trustee and its advisers met with Mr Truell and his advisers to discuss those proposals.
Mr Truell’s proposals would have involved entities under his control taking responsibility for managing the Scheme’s assets of nearly £15 billion, taking a share of future investment out-performance, and providing a limited covenant to cover downside risks. Mr Truell’s proposals were dependent on co-operation and commitments from HM Government and Tata Steel, corporate and financial transactions with third parties, and approval by the Pensions Regulator. Mr Truell was unable to demonstrate that there was any reasonable prospect of these things happening.
With the benefit of its knowledge of all the circumstances currently surrounding the Scheme, the Trustee concluded that Mr Truell’s proposals were not viable and would expose members to unacceptable risk. This has been explained to Mr Truell.
The Trustee remains committed to achieving the best possible outcome for the Scheme membership and is willing to consider any credible options consistent with this objective. The Trustee continues its constructive discussions with Tata Steel, HM Government, the Pensions Regulator and other stakeholders.
Statement from the Trustee board, 12 January 2017
Tata Steel UK announced on 7 December that it had reached an agreement with the trade unions to make progress towards termination of benefit accrual in the British Steel Pension Scheme and to take steps towards a more sustainable future for the business.
Tata Steel has indicated that it believes the ability to achieve a sustainable future for the UK business is dependent on the structural de-risking and de-linking of BSPS from the business. TSUK is now in discussions with the Trustee and the relevant regulatory bodies on how this might be achieved.
The options for separating BSPS from TSUK include a Regulated Apportionment Arrangement approved by the Pensions Regulator. Normally, after an RAA has been agreed for a pension scheme, the pension scheme goes into the Pension Protection Fund. However, the Trustee hope and expect to be able to provide better benefits for members than PPF compensation. This could be done by transferring members and assets to a new scheme with modified benefits that could operate on a low risk basis.
This would be an option for BSPS because it has enough assets to provide these modified benefits on a low risk basis and with a high level of confidence that the new scheme would never fall into the PPF.
Tata Steel is continuing to support TSUK while consultation takes place with employee members of the BSPS and their representatives on the termination of benefit accrual and discussions are progressing with the Trustee and relevant regulatory bodies about the de-linking of BSPS. It cannot be assumed that this support would continue if an RAA or other mechanism to de-link is not agreed.
Statement from the Trustee board of the British Steel Pension Scheme - 7 December 2016
The Trustee Board of the British Steel Pension Scheme (BSPS) believes today’s announcement that Tata Steel UK Limited (“TSUK”) is to begin consultation on closure of the British Steel Pension Scheme (“BSPS” or the “Scheme”) is an important step in securing the best outcome for the Scheme Members.
Based on the information available, the Trustee believes that entry into the PPF (Pension Protection Fund) remains the most likely outcome for the Scheme. This is unless benefits are modified so that the Scheme no longer has a deficit and has adequate reserves to cover residual risks. Closing the BSPS is an important step in preparing the Scheme for the future and securing a better outcome for Members than entry into the PPF can offer.
As part of TSUK’s transformation plan to improve performance and enable a sustainable business, it wishes to reduce and limit its exposure to the BSPS before making commitments for the future.
Information prepared by the Scheme Actuary presents a detailed analysis of how the assets held by the Scheme could meet the proposed modified liabilities on a low-risk basis, with a buffer of about £2 billion to cover the residual risks. This analysis is based on modified benefits after closure, and is therefore not affected by today’s announcement.
Allan Johnston, Chairman of the Trustee Board of the British Steel Pension Scheme, said:
“Options for separating BSPS from Tata Steel were outlined in the Government’s consultation document in May. All of these options required closure of the BSPS to future accrual.
“The Trustee is in constructive discussions with Tata Steel, HM Government and the Pensions Regulator about the options in the consultation.
“Although the Trustee was not involved in the negotiations between TSUK and the trade unions about closure of the BSPS, today’s announcement is an important step towards achieving the best possible outcome for the Scheme and its members.
“The Trustee remains confident that the assets it holds are more than enough to pay the proposed modified benefits, which would be a better outcome than PPF compensation for the vast majority of members.”
Press Release - 27 September 2016
Member clarification following inaccurate media reporting
It was recently reported in elements of the media that an internal Government report dated 13 June 2016 had indicated the BSPS would require additional assets in the region of £3 billion - £4 billion in order to meet its reduced liabilities on a self-sufficiency / low risk basis. The Trustee has not seen the report in question and the underlying figures have not been the subject of discussion between the Trustee and Government officials.
Based on the date of the report quoted, we understand this to be an internal Government paper which used preliminary valuation figures and incorrectly interpreted information provided by the Scheme Actuary. This error was identified towards the end of June and corrected in subsequent reporting.
Information prepared by the Scheme Actuary now being considered by Government presents a detailed analysis of how the assets held by the Scheme on 31 March 2016 could meet the proposed modified liabilities on a self-sufficiency basis, with a substantial buffer to cover residual risks.
The Trustee continues to take the view that a compelling case has been made to Government, the Pensions Regulator and other stakeholders regarding the Scheme’s ability to pay modified benefits indefinitely and on a low-risk basis outside the Pension Protection Fund (“PPF”).
The Trustee position remains that although the PPF is an important safeguard for pension schemes generally, it believes that better and fairer outcomes can be achieved for the Scheme’s membership by staying out of it.
Member Update - 12 September 2016
The Trustee notes the recent media coverage regarding possible changes to future pension increases for British Steel Pension Scheme members.
The Trustee has set out a compelling case to Government, the Pensions Regulator and other stakeholders regarding the Scheme’s ability to pay modified benefits indefinitely and on a low-risk basis outside the Pension Protection Fund (“PPF”). The recent Government consultation considered a number of options that might make this possible.
Allan Johnston, Chairman of the Trustee Board of the British Steel Pension Scheme, said:
“Although the PPF is an important safeguard for pension schemes generally, we believe that better and fairer outcomes can be achieved for our membership by staying out of it.
In our response to the recent Government consultation, the trustee strongly supported the option to disapply Section 67 specifically for the BSPS in its current circumstances. Although other options were outlined and are being considered which could allow benefits to be modified and all or part of the Scheme to remain outside the PPF, the disapplication of Section 67 continues to be our preferred option and we expect to have further discussions with Government before any decision is taken on the consultation outcome."
Member Update - 12 August 2016
The Trustee Board of the British Steel Pension Scheme (‘BSPS’ or ‘the Scheme’) and its advisers have provided the Government, the Pensions Regulator and other stakeholders with compelling evidence of the Scheme’s ability to pay modified benefits indefinitely and on a low-risk basis outside the Pension Protection Fund (‘PPF’).
Tata Steel is currently looking at alternative and more sustainable solutions for its European business. The Trustee accepts that it would not be realistic to expect that a buyer of the UK business or a joint venture would take on responsibility for funding the current or future deficit in the BSPS.
In the scenarios envisaged for Tata Steel UK, the Trustee takes the view that entry into the PPF remains the most likely outcome for the Scheme unless benefits are modified so that the Scheme no longer has a deficit and has adequate reserves to cover residual risks. If the Trustee was satisfied that the Scheme could remain outside the PPF by other means, it would not wish to modify benefits.
The PPF provides an important safety net for pension schemes generally but the Trustee believes that, because the BSPS is relatively well funded, a better and fairer outcome can be achieved for the membership by modifying benefits and staying out of the PPF.
The modifications necessary for this outcome would involve using the Consumer Prices Index (‘CPI’) instead of the Retail Prices Index (‘RPI’) for future increases to pensions in deferment and limiting future increases to pensions in payment to the minimum required by law. These modified benefits would be better than PPF compensation for the vast majority of Scheme members. This was explained to members of the BSPS in a letter dated 26 May, which can be found here.
The Trustee has asked the Government to help achieve this outcome by removing legal obstacles to the benefit modifications.
Scheme Officers and advisers have provided persuasive evidence to Government officials that the Scheme would be able to operate successfully on this basis without significant risk for the PPF.
The information provided assumes the Scheme moves to a long-term, low-risk investment policy designed to match cash inflows to benefit outflows. Even allowing for the recent falls in interest rates, the Scheme would still have a very significant financial buffer available to protect against residual risks. Those risks would be much lower than the risks being run by most other pension schemes in the UK, and lower than those of the PPF itself. This means that, even if these risks were to materialise, the net result for the PPF should still be better than if BSPS went into the PPF now and if the risks do not materialise, the buffer could be used to reinstate future pension / benefit increases.
Discussions with Government officials, the Pensions Regulator, Tata Steel and other stakeholders are on-going and further updates will be provided to Scheme members when appropriate.
The Government is currently considering its response to the consultation on the BSPS and an announcement is expected in due course. The Trustee wishes to thank those members who participated in the consultation.
Allan Johnston, Chairman of the Trustee Board of the British Steel Pension Scheme, said:
“The Trustee and its advisers have provided Tata Steel, the Government and the Pensions Regulator with compelling evidence of the Scheme’s ability to pay modified benefits indefinitely and on a low-risk basis outside the Pension Protection Fund.
“At the last funding update as at 31 March 2015, the Trustee reported a deficit on an on-going basis (i.e., by reference to technical provisions calculated in accordance with statutory requirements) of £485 million. On a consistent basis, as at 31 March 2016, the Scheme Actuary has indicated that the deficit had reduced to around £300 million. However if Tata Steel UK is no longer able to access additional capital from the wider Tata Steel Group for continuation of business, a different valuation basis would have to be adopted and the deficit at both dates would be considerably higher. This is the main reason that the Trustee considers that benefits need to be modified.
“The improvement in the Scheme's funding position between March 2015 and March 2016 is due in part to favourable demographic experience since the last full Valuation and also to the Scheme's continued strong investment performance.
“Our investment strategy has meant that the Scheme's funding position has not been affected by recent falls in gilt yields in the same way as many other UK pension schemes and we remain confident of the Scheme's ability to provide modified benefits as proposed on a self-sufficient basis.
“The Scheme’s success in managing investment risk has been recognised by the external analyst State Street, which provides benchmarking information to many large UK pension schemes. Over the ten-year period to 31 March 2016, the Scheme recorded the best performance relative to other large funds in the survey on both absolute and risk adjusted bases.
“Scheme assets have recently reached an all-time high of over £15 billion, though the historically low yields will also have increased the Scheme’s liabilities.”
BSPS Response to Government Consultation - 16 June 2016
The trustee of the British Steel Pension Scheme (‘BSPS’) has today given its formal response to the Consultation Document issued by the Department for Work and Pensions on 26 May 2016. The trustee's response, which can be found here, makes the following key points:
- Decisions about the future of the Tata Steel UK business could result in BSPS going into the Pension Protection Fund (‘PPF’). Members would then be paid Pension Protection Fund compensation which, for 58,000 members below age 65, would involve benefit reductions of at least 10% and, for all members, reductions in future pension increases.
- The PPF is an important safety net for pension schemes. But BSPS is a very large, well-funded scheme that is able to provide better benefits than PPF compensation on a self-sufficiency basis. The trustee wants to find a solution that avoids BSPS going into the Pension Protection Fund.
- The trustee's proposals involve modified future pension increases that, for all members, are at least as good as the increases that would apply to PPF compensation, and better for most. There would be no benefit reductions.
- The trustee has written to all 130,000 members explaining the proposals in detail. The letter is available on the BSPS website: here.
- BSPS was set up in 1990 on the basis that future pension increases could be reduced if they were no longer affordable. Subsequent legislation that was designed to protect members' accrued rights is now an obstacle to securing the best outcomes for BSPS members.
- The trustee strongly supports the Government's proposal to disapply that legislation, specifically for BSPS in these particular circumstances.
- The trustee is clear that future pension increases should be reduced only if the alternative is for BSPS to go into the PPF.
- The trustee also wishes to ensure that any surplus in BSPS is used to improve the security of benefits and/or to reinstate pension increases (which would not happen in the PPF). No surplus would be paid to any sponsor or employer.
- For the reasons set out in the trustee's response, it would be better for the PPF and its levy payers if BSPS stays out of the PPF for at least the next ten years. If pension increases are reduced as proposed, the trustee expects BSPS to stay out of the PPF indefinitely.
- The trustee is engaged with Government and the Pensions Regulator to demonstrate how it will be able to provide better benefits than PPF compensation on a self-sufficiency basis. This may be dependent on the separation terms to be agreed with Tata Steel, involving the release of limited guarantees and security currently provided to BSPS by Tata Steel group companies.
Information on the Government's consultation, which ends on 23 June 2016, can be found here.
Allan Johnston, Chairman of the Trustee Board of the British Steel Pension Scheme, said:
“Our overriding objective remains to achieve the best outcomes for our members.
“The current statutory framework could force BSPS into the Pension Protection Fund. Although the PPF is an important safeguard for pension schemes generally, we believe that better outcomes can be achieved for our members by staying out of it.
“BSPS is a very large, well-funded scheme able to provide better benefits than PPF compensation.
“If our proposals are implemented, the vast majority of members will be better off than going into the PPF.
“We have asked the Government to remove a legislative obstacle to achieving this outcome.
“We welcome the Government’s consultation and expect to satisfy the Government and the Pensions Regulator that, if BSPS stays out of the Pension Protection Fund, it can be financially self-sufficient and is most unlikely to go into the PPF at any time in the future.”
The Pensions Advisory Service (TPAS) are operating a helpline to explain the consultation process. The TPAS helpline number is 0207 630 2709. If you wish to ask a question you can also do so through TPAS' webchat system: http://webchat.pensionsadvisoryservice.org.uk/webchat/main.aspx?QueueName=CHAT
Press Release - 8 June 2016
British Steel Pension Scheme members urged to contribute to public consultation process
Trustee of British Steel Pension Scheme encourages members to have their voices heard on proposals which would be better and fairer for them than the Pension Protection Fund
Letters from the British Steel Pension Scheme are currently arriving at the homes of the 130,000 scheme members across the country.
Based on the information currently available following Tata Steel’s announcement regarding UK portfolio restructuring, it looks increasingly likely that the British Steel Pension Scheme would be required to go into the Pension Protection Fund.
Although the Pension Protection Fund provides a valuable safety net for pension schemes generally, entry would significantly reduce future pension increases for all members of the British Steel Pension Scheme and, for 58,000 people under the age of 65, result in cuts in pensions of at least 10%.
Allan Johnston, Chairman of the Board of Trustees of the British Steel Pension Scheme, said: “I have written to scheme members setting out why the Trustee believes it is better and fairer to use the scheme’s assets to provide modified benefits under the scheme than to hand the assets over to the Pension Protection Fund.
“The modified benefits would be more generous for the vast majority of members than Pension Protection Fund compensation.
Although it is correct that the modification being consulted on by Government would see future pension increases being reduced, they would be no lower than those offered by the Pension Protection Fund and in many cases they would be higher. In addition, members under the age of 65 would not be subject to a reduction of at least 10% which would apply if the scheme entered the Pension Protection Fund.
Not everyone responding to the public consultation will necessarily do so with the best interests of the scheme membership in mind. It is vitally important that scheme members have their voices heard.”
Information on the consultation can be found on the Department for Work and Pensions website https://www.gov.uk/government/consultations/british-steel-pension-scheme.
Important Letter from the Trustee Chairman
The Government is currently undertaking a public consultation exercise on potential changes to the law as it relates to the British Steel Pension Scheme which could result in changes to your Scheme benefits. The consultation document can be found here.
The Trustee will be writing to Scheme members setting out the background to this consultation and explaining why your Trustee believes the proposed changes would be in the best interests of the Scheme membership. A copy of the Trustee’s letter can be found here.
The consultation is about you and the outcome will directly affect your retirement income. However, as this is a public consultation, anyone can comment whether or not they are connected to the Scheme. Not everyone responding will necessarily do so with the best interests of the Scheme membership in mind.
You do not have to take any action as a result of this communication but you may wish to participate in the consultation. Information on responding to the consultation will be added to the Scheme website.
26 May 2016
Press Release – 26 May 2016
Allan Johnston, Chairman of the Board of Trustees of the British Steel Pension Scheme said:
“The Trustee of the British Steel Pension Scheme ('the Scheme') welcomes the Government’s decision to consult on changes to the law applying to the Scheme.
“The Trustee will be writing to members over the coming days to make clear its belief that, with Government support, it should be possible to modify benefits so as to allow the Scheme to remain outside the Pension Protection Fund (‘PPF’) indefinitely and on a low-risk basis. Although this would entail future pension increases being cut back from their current levels, benefits would be more generous than those provided by the PPF for the vast majority of Scheme members.
“The primary focus of the Trustee is to secure the best outcome for Scheme members. Whilst the current pension protection framework provides a valuable safeguard for pension scheme members generally, the circumstances of the British Steel Pension Scheme are such that its assets could be better used in paying member benefits than potentially swelling a PPF surplus or insurance companies’ profits.
“The Government consultation is open to the public and not everyone replying will necessarily do so with the best interests of the Scheme membership in mind. The Trustee will be looking to ensure that the views of members are properly reflected in the consultation outcome.”