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Ta-ta to pension increases?

Ta-ta to pension increases?

money maze

I posted previously about British Steel/Tata and the impact their pension deficit is having on the ongoing viability of the company and its ability to find buyers.

 

We are still in a phase of negotiation and rumours, but the ex-Pensions Minister, Steve Webb, who we assume still has contacts within government, is tweeting about the potential for Government to allow that scheme to reduce pension increases, and thereby cut its pension liability substantially.

One rumour flying around is that the pension scheme will be allowed to use the CPI measure of price inflation for working out pension increases, rather than the RPI measure (which is presumably hard-coded into the current rules, given it survived George Osborne's purge on RPI in 2010).

Another rumour hot off the press is that pension benefits accrued (built up) before April 1997 would no longer see any increase.

One would assume that, in order to maximise savings, government would consider applying such proposals to all members of the scheme, including pensioners and deferred members.

This goes against the much-cherished Section 67 of the Pensions Act 1995, which effectively says that accrued pensions cannot be taken away (unless a scheme is set to enter the Pension Protection Fund).

So what does Government do?  Do they write special rules for this one pension scheme - potentially offering state aid to a struggling firm?  Or do they legislate more generally to weaken Section 67, which will cause uproar amongst TUs? 

Or completely out of left-field, do they try to designate this scheme as public sector, to which Section 67 does not apply?

And what do Tata employees do?  They have a clear (and justifiable) interest in securing jobs.  Many will be worried about the loss of pension rights, but will see that as a price worth paying.  Some pensioners and deferred members may disagree though.  This is likely to be a tricky balancing act....

 

STOP PRESS  - the consultation on this has been published. Proposal seems to be to reduce pension increases to the statutory minimum level:

  • 0% (i.e. no pension increase) for pension built up before April 1997
  • CPI up to a maximum of 5%pa for pension built up between April 1997 and March 2005
  • CPI up to a maximum of 2.5%pa for pension built up after March 2005

 

And for this proposal to apply only to the BSPS. Or in DWP's words - "We are not, therefore, considering extending the proposal beyond the BSPS as a specific scheme."

I, for one, am pleased to see that the word "currently" does not feature in that sentence.

 

Philip McEvoy

Philip McEvoy


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