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Tata steel pension chief backs controversial cuts Tata steel pension chief backs controversial cuts
(about 1 hour later)
The trustees of the pension scheme behind Tata Steel have backed the government’s plan to restructure its benefits, despite warnings that such a move would set a dangerous precedent.The trustees of the pension scheme behind Tata Steel have backed the government’s plan to restructure its benefits, despite warnings that such a move would set a dangerous precedent.
Allan Johnston, the chairman of the board of trustees of the British Steel Pension Scheme, said he welcomed the government’s decision to consult on changes to the scheme and that it would be a better outcome for members than entering the Pension Protection Fund. Allan Johnston, the chairman of the board of trustees of the British Steel pension scheme, said he welcomed the government’s decision to consult on changes to the scheme and that it would be a better outcome for members than entering the Pension Protection Fund (PPF).
The pension scheme is seen as a major hurdle to a rescue deal for Tata Steel UK, which employs 11,000 people. The latest figures show it has liabilities of almost £15bn and a deficit of £700m. Tata Steel is evaluating bids for the business but is also seriously considering keeping it. The government believes if it can significantly restructure the pension scheme then Tata Steel can be persuaded to keep the business. The pension scheme is seen as a major hurdle to a rescue deal for Tata Steel UK, which employs 11,000 people. The latest figures show it has liabilities of almost £15bn and the deficit has ballooned to £700m. Tata Steel is evaluating bids for the business but is also seriously considering keeping it. The government believes if it can significantly restructure the pension scheme then Tata Steel can be persuaded to keep the business.
Sajid Javid, the business secretary, has said the government is willing to offer hundreds of millions of pounds to a buyer and is looking at ways to restructure the pension scheme by reducing its liabilities by billions of pounds. Sajid Javid, the business secretary, said the trustees had asked the government to make the scheme exempt from legislation in the 1995 Pensions Act.
However, there is a row within the government about Javid’s plan to cut the scheme’s liabilities by benchmarking it against the consumer price index (CPI) rather than the retail price index (RPI) and spinning it off into a new financial vehicle. The Department for Work and Pensions is concerned that this could set a dangerous precedent for defined benefit pension schemes, also known as final salary schemes. “The scheme’s trustees have come forward and asked us to look at current legislation,” Javid told MPs. “The scheme trustees have put forward this proposal and it is only right that we consider it.”
Javid is scheduled to update parliament on the progress of talks on Thursday after meeting in Mumbai with senior Tata representatives. However, Angela Eagle, the shadow business secretary, said the plans “risk setting a very worrying precedent” and questioned whether the government can ensure that any changes to pension laws are “safely ring-fenced”.
In a statement, Johnston said trustees supported government plans. Javid has said the government is willing to offer hundreds of millions of pounds to a buyer and is looking at ways to restructure the pension scheme by reducing its liabilities by billions of pounds.
He said: “The trustee of the British Steel Pension Scheme welcomes the government’s decision to consult on changes to the law applying to the scheme. The government is proposing to cut the scheme’s liabilities by benchmarking it against the consumer price index (CPI) rather than the retail price index (RPI) and spinning it off into a new financial vehicle. It has launched a month-long consultation into the changes.
“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. In a statement, Johnston said trustees supported government plans. He said: “The trustee of the British Steel pension scheme welcomes the government’s decision to consult on changes to the law applying to the scheme.
“The primary focus of the trustee is to secure the best outcome for scheme members. While 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 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 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.”
However, ministers have been warned not to rush into far-reaching changes to pensions law in an attempt to save Tata’s UK steel-making assets. Tata Steel also backed the proposals, saying they would “significantly improve the funding position and risk associated with the British Steel pension scheme”.
The government has confirmed it is looking at “all options” on the pension scheme. Trade unions representing steelworkers said entering the PPF would be an “unmitigated disaster” because of the cut to workers’ benefits and welcomed the consultation. However, they warned that Tata Steel still has “significant legal, social and moral responsibilities” to its workers.
The move was welcomed by the Welsh first minister, Carwyn Jones, who has been in Mumbai with Javid. The Community, Unite and GMB unions said in a statement: “It is important that all stakeholders continue to explore all available options that avoid the need for the scheme to go into the PPF, which would be the worst deal for scheme members.
He said there were ways of dealing with the issue without having to put the fund into the government’s PPF lifeboat. “We will seek to work constructively with the UK government and the scheme trustees to deliver the best possible deal for our members.
“There are ways of looking to change the law on this and we would urge the UK government to do that,” he told Channel 4 News. “We need to ensure that there are cast iron safeguards in place so this unique situation does not result in employers dodging their pensions responsibilities.”
“It’s right to say – let’s not pretend otherwise – that it’s unlikely that any buyer will come forward with the pension liability there. Ministers have been warned not to rush into far-reaching changes to pensions law in an attempt to save Tata’s UK steelmaking assets.
“But there are ways for the UK government to remove that liability without actually putting the fund in the Pension Protection Fund which would then of course see a cut in benefits for those who are already beneficiaries.”
There have been misgivings about the wider implications in the Department for Work and Pensions and the Treasury.
The Liberal Democrat former pensions minister Steve Webb said the government was “going down a very dangerous path” in seeking to change the law.The Liberal Democrat former pensions minister Steve Webb said the government was “going down a very dangerous path” in seeking to change the law.
“Everyone has huge sympathy for steel workers and for efforts to protect jobs, but rushed changes to pension rules risk driving a coach and horses through the pension security of hundreds of thousands of workers, well beyond the steel industry,” he said. “Everyone has huge sympathy for steelworkers and for efforts to protect jobs, but rushed changes to pension rules risk driving a coach and horses through the pension security of hundreds of thousands of workers, well beyond the steel industry,” he said.
“The rules to protect pensions have been carefully worked out over many years. Rushed legislation could open the floodgates to employers who may wish to walk away from their pension schemes rather than honour their pension promises. The government must tread very carefully in this area.”“The rules to protect pensions have been carefully worked out over many years. Rushed legislation could open the floodgates to employers who may wish to walk away from their pension schemes rather than honour their pension promises. The government must tread very carefully in this area.”
For Labour, the shadow work and pensions secretary, Owen Smith, said it would be “totally inappropriate” for ministers to “rush out” an announcement on the final day before a Commons recess without the chance for proper scrutiny by MPs. However, pensions analysts said the move could help struggling companies who have found it difficult to restructure expensive pension schemes.
“Steel workers’ pensions must be protected. They have earned them with hard graft over many years,” he said. Tom McPhail, the head of retirement policy at financial adviser Hargreaves Lansdown, said: ‘In this case, a change of escalation rates could be the least worse solution. But the potential deal on British Steel could rip a hole in one of the most fundamental principles of pension provision. It is well established that pension benefits, once granted cannot be taken away.
“So if ministers are considering measures which might see those pensions reduced, MPs from all parties, especially those representing steel communities, will want a chance to question the plans, along with the trade unions who are playing such a vital and impressive role standing up for Tata workers.” “The government should be very cautious about sacrificing such a principle in pursuit of short-term interests, even if there are tens of thousands of jobs at stake.
“Having said that, it may be a blessing in disguise. Some final salary schemes have become unsustainably expensive. The bulk of employer pension funding is being used to prop up these schemes, at the expense of younger employees in defined contribution pensions. A review of how we treat final salary guarantees could ultimately unlock better long-term pension provision.”
Meanwhile, Jean-Claude Juncker has promised that the EU will “step up” its measures to defend the steel industry against dumping.Meanwhile, Jean-Claude Juncker has promised that the EU will “step up” its measures to defend the steel industry against dumping.
The European commission president said the issue would be part of any decision on granting China “market economy status”, something that Britain had pushed for vocally but which the steel industry has warned could further inhibit its ability to compete. The European commission president said the issue would be part of any decision on granting China “market economy status”, something Britain had pushed for vocally but which the steel industry has warned could further inhibit its ability to compete.
Juncker’s words came after the prime minister, David Cameron, said he could still offer “no guarantees” about the future of the Port Talbot site, which is one of a number threatened by Tata’s decision to sell its British assets. Juncker’s words came after the prime minister, David Cameron, said he could still offer “no guarantees” about the future of the Port Talbot site in south Wales, which is one of a number threatened by Tata’s decision to sell its British assets.
The Indian company was expected to announce a shortlist of companies bidding to purchase its UK arm after a board meeting on Wednesday but failed to do so. Eight companies are thought to be in the running.The Indian company was expected to announce a shortlist of companies bidding to purchase its UK arm after a board meeting on Wednesday but failed to do so. Eight companies are thought to be in the running.
It is believed that one option on the table is for Tata to take on investment support offered by the British government and maintain its operations.It is believed that one option on the table is for Tata to take on investment support offered by the British government and maintain its operations.
Cameron said the issue of overcapacity in the steel industry would be on the agenda at the G7 on Thursday in one of a number of sessions planned between world leaders.