Former pensions minister and pensions campaigner Baroness Altmann has welcomed news that Tata Steel has agreed with the steel unions in South Wales to safeguard the future of the Port Talbot blast furnaces.
However, Baroness Altmann added that the future of the £15 billion British Steel Pension Scheme is unclear with negotiations still going on whether the scheme will enter the Pension Protection Fund (PPF). Altmann commented: “The job security and new investment in the business seems to have come, however, partly as a consequence of changes to the pension arrangements enjoyed by the 130,000 British Steel Pension scheme members. By closing the Scheme and looking to change future arrangements, Tata’s burden of ongoing pension contributions could be reduced.”
At present, it is proposed to close the DB scheme and start a generous DC plan for all workers, with a maximum 10% employer contribution with 6% from employees. This is above the legal minimum under the auto-enrolment regime. But Altmann said it is not clear what happens to the existing final salary scheme. The government consulted earlier this year on forcing through benefit cuts promised to current and past workers, which would create a dangerous precedent for other funds. But there has not yet been confirmation of what will happen as a result of the consultation. Statements from Tata and the steel unions suggest that the scheme will be de-risked and de-linked, which could mean that the scheme is heading for the PPF.
According to Altmann, one option would be for a regulated apportionment agreement (RAA), which separates the business from the pension scheme, removing the burden of the DB pension fund from the Port Talbot blast furnaces with the scheme then entering the PPF. This type of deal helps firms that cannot afford their pension liabilities but want to keep the business going and preserve jobs. Another option would be a standalone scheme, which would mean cuts to benefits with the scheme remaining outside the PPF.