The government is currently consulting on changes to the British Steel pension fund. They could mean that British Steel pensioners lose out in the future.
Q. Why is the government planning to change the British Steel pension fund?
A. The government is considering a bail-out for the UK’s steel industry and as part of that package it is consulting on making changes to the British Steel pension fund and separating the fund from the steel business. Because some of these changes would need legislation, the government has to approve them, which is why it’s consulting on them.
Q. How many people are in the British Steel pension scheme?
A. There are 130,000 members. Of those, 14,000 are currently employed and are paying into the pension scheme in question, 32,000 have left the pension scheme but are too young to retire (called ‘deferred’ members) and 84,000 are pensioners.
Q. How big is the deficit?
A. That might seem like a straightforward question, but there are different ways of calculating a deficit. To pay everyone the pension they’ve built up today would cost £7.5 billion (although obviously that’s not needed because some people aren’t due to retire for a while).
To pay the equivalent pension that someone would get if they were covered by the Pension Protection Fund would cost an extra £1.5 billion and if a solvent employer could take on the pension scheme, the deficit is £700 million. The problem is that it’s proving very difficult to find a company that would be happy to take on the pension scheme deficit.
Q. What could change if the government backs the changes to the British Steel pension fund?
A. There are several changes being considered. There are broadly four different options on the table in terms of how the pension scheme is separated from the employer. They’re all quite technical and they focus on what rules are used to separate the pension scheme from Tata Steel or for it to be transferred to a new employer.
The preferred option seems to be one that means members of the British Steel pension fund would be paid a higher pension than they would have been paid if the scheme was taken over by the Pension Protection Fund, but not the pensions they were promised.
The pension provider Royal London says that the oldest pensioners could lose over £10,000 as a result of the changes.
Q. How much could British Steel pension scheme members get?
A. It’s hard to say exactly what they’d get, but part of the favoured option (if the government decides to go ahead after the consultation) would be:
- To reduce the measure of inflation (the amount by which the pension rises each year) from RPI (retail prices index) to CPI for all pensions that are currently being paid.
- To reduce the inflation linking for pensions of those who have left the pension scheme and are waiting to receive their pension.
Crucially, only part of their pension would only rise in line with inflation – namely the part that was built up after April 6th 1997. This is in line with the rules for the Pension Protection Fund. You can find out more about How is your company pension protected by the Pension Protection Fund? in my article.
SAVVY TIP: The CPI rate is generally lower than RPI, and most pensioners pay a higher inflation rate than the average population as a result of what they spend their money on. This change would mean that in the future, existing pensioners would get a lower increase to their pension than they would under the current rules and may get no increase at all.
Q. I’m not in the British Steel pension scheme. Why does this matter?
A. The government’s current consultation only relates to the British Steel pension scheme but, if it gets the go ahead, there’s definitely a chance that other pension schemes will try and get similar changes.
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