Department for Work & Pensions British Steel Pension Scheme. Response from The Pensions Management Institute

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1 Department for Work & Pensions British Steel Pension Scheme Response from The Pensions Management Institute

2 - 2 - Response from the Pensions Management Institute to DWP consultation British Steel Pension Scheme Introduction PMI is the professional body which supports and develops those who work in the pensions industry. PMI offers a range of qualifications designed to meet the requirements of those who manage workplace pension schemes or who provide professional services to them. Our members (currently some 6,000) include pensions managers, lawyers, actuaries, consultants, administrators and others. Their experience is therefore wide ranging and has contributed to the thinking expressed in this response. Due to the wide range of professional disciplines represented, our members represent a cross-section of the pensions industry as a whole. PMI is focused on supporting its members to enable them to perform their jobs to the highest professional standards, and thereby benefit members of retirement benefit arrangements for which they are responsible. This consultation presents difficult choices. On the one hand, there is an opportunity to offer BSPS members the opportunity of benefits that would be better than those that would be provided via the PPF. On the other hand, there is the prospect of setting a potentially dangerous precedent by permitting the reduction of accrued rights. The Government clearly wishes to achieve the best possible outcome for BSPS members whilst acknowledging the dictum of Oliver Wendell Holmes Jr that hard cases make bad law. In preparing our response to this consultation, PMI polled its membership. The poll ran for ten days and received 155 responses. The two questions, and the responses to them, were as follows:

3 Do you believe it is appropriate to dis-apply Section 67 for a named scheme if that gives a better outcome for members than PPF benefits? Yes: 60% No: 40% 2. Do you agree in principle with the idea of legislating to allow the reduction of future increases (or indexation ) to accrued rights? Yes: 52% No: 48% The results show a narrow endorsement of the ideas proposed by the Government and endorsed by the Trustee of the BSPS. Our poll indicates that PMI members believe it is in this instance appropriate either for the Government to disapply Section 67 of PA 1995 or to permit a bulk transfer of benefits without obtaining member consent. This view has formed the basis of our response. Kevin LeGrand PMI President and Chair, External Affairs Committee

4 - 4 - Question 1 Would existing regulatory levers be sufficient to achieve a good outcome for all concerned? The use of a Regulated Apportionment Agreement (RAA) or Flexible Apportionment Agreement (FAA) would permit formal separation of the British Steel Pensions Scheme (BSPS) from Tata Steel UK (TSUK). It would be necessary to create a new scheme sponsor for BSPS, and any existing guarantees currently offered by TSUK would be lost. Whilst the option of an RAA or FAA is technically possible, we cannot comment on the chances of the BSPS ultimately achieving self-sufficiency. Question 2 Is it appropriate to make modifications of this type to members benefits in order to improve the sustainability of a pension scheme? and Question 3 Is there a case for disapplying the section 67 subsisting rights provisions for the BSPS in order to allow the scheme to reduce indexation and revaluation if it means that most (but not all) members would receive more than PPF levels of compensation? In our poll, 60% of members agreed in principle with the idea of disapplying Section 67 of PA 1995 with the result was to leave members with better benefits than would be provided via the PPF. We note that the Trust Deed and Rules of the BSPS originally made provision for all pension increases to be made on a discretionary basis. Additionally, there was scope for benefits in payment to be reduced. Of course, the Pensions Act 1995 superseded these provisions. However, we note the principle that at its inception the scheme allowed for the reduction of accrued rights.

5 - 5 - In our poll, there was a small majority (50% to 48%) of members in favour of the specific measure of disapplying statutory indexation to pensions in payment and revaluation of deferred pensions. However, we are concerned that modifying members accrued rights would establish a serious precedent, and that such arrangements would be proposed frequently in future. However, in this case benefits would still be superior to those provided via the PPF. With this in mind, we believe that there is on this occasion legitimate grounds for allowing accrued rights to be reduced. In spite of the risk of setting a precedent, we believe that this option represents the best outcome for BSPS members. It also protects the PPF. Question 4 Is there a case for making regulatory changes to allow trustees to transfer scheme members into a new successor scheme with reduced benefit entitlement without consent, in order to ensure they would receive better than PPF level benefits? The key issue here is that transfers could be made without members explicit consent. We note that as BSPS has approximately 130,000 members, it would not be realistic to suppose that the consent of all members could be achieved within a reasonable timeframe. We recognise too that the ultimate objective is to provide members with benefits that would be better than those offered via the PPF. We also acknowledge that members would have the additional option of transferring benefits to an alternative pensions arrangement. With this in mind, we believe that the transfer of benefits without members consent would in these specific circumstances be less likely to set a significant precedent; BSPS is a very large scheme and the problems this proposal addresses are unlikely to occur frequently in future. We therefore agree that there is a legitimate case in this instance for permitting the bulk transfer of benefits without member consent.

6 - 6 - Question 5 How would a new scheme best be run and governed? A new scheme would be established as a Special Purpose Vehicle (SPV). We suggest that the Trustee Board be appointed by the Pensions Regulator. Given that its establishment would keep BSPS liabilities out of the PPF, it would not be unreasonable for funds raised via the PPF levy to be used to meet its operational expenses. Question 6 How might the Government best ensure that any surplus is used in the best interest of the scheme s members? We do not see this as an issue which will ever be more than a technical possibility. However, we believe that the Trustees should ensure that ensure that any surplus be used solely to improve members benefits. Question 7 What conditions need to be met to ensure that regulations achieve the objective of allowing TSUK to reduce the levels of indexation and revaluation payable on future payment of accrued pension in the BSPS without the need for member consent, balancing the need to ensure that members rights are not unduly compromised? We believe that there should be agreement between the Government and the existing BSPS Trustee Board that the disapplication of Section 67 would ultimately be in the best interests of the significant majority of BSPS members. As we have noted above, the BSPS rules did not originally offer guaranteed indexation to pensions in payment or revaluation of deferred pensions, and that the proposed rules therefore represent a restoration of the status quo ante. The crucial difference for members is that benefits would still be better than those available via the PPF.

7 - 7 - We believe that on its establishment the new scheme should make a guarantee that no further reduction to members benefits be made. Question 8 What conditions need to be met to ensure that regulations achieve the objective of allowing trustees to transfer members to a new scheme without the need for member consent, balancing the need to ensure that members rights are not unduly compromised? We believe that that the BSPS Trustee should be required to have contacted an agreed quota of BSPS members before proceeding. In view of the numbers involved, we believe a target of 80% would not be unreasonable. ***** ***** *****