More pre-referendum shenanigans revealed

So the mysterious volte face by the Government over the Tata Steel pensions rescue package is a mystery no more.

The FT, led by super-snooper Jo Cumbo have unearthed the GAD submission to the DWP consultation on solutions to the Tata Steel pension problem. It turns out that “if it looks too good to be true, it probably is too good to be true”. Like so much of the lazy slapdash thinking that characterised the Remain obsessed Cameron Government, the Tata Steel rescue plan was a sop to kick a long term problem into the short grass.

It looks like the grass just got cut.

The FT claim to have seen the Government Actuary’s Department’s analysis which suggests that even with the reduced liability (and benefits) proposed, there would have needed to be an injection of £3-4bn to protect the security of member’s rights.

That  £3-4bn is what the ongoing support of a company like Tata ( or another taking on the pension scheme) is worth to members. Put another way, it’s the price of sufficiency.

Which is why defined benefit schemes need an ongoing sponsor. They simply don’t run themselves, they need recourse to emergency cash when times get hard – they are not sufficient (without a huge was of notes in their back pocket).

Pensions need companies  like kids need parents.

I think of my lucky son, off to College with the surety of the bank of Mum and Dad to back him up. He may never go for that emergency loan but he knows that were he to, he’d have a 99% chance of getting it. Those students who don’t have recourse to Mum and Dad have to get credit from the market (i.e ..the Banks or worse).

Of course my son doesn’t value his Dad’s solvency; we never value what we’ve got till it’s gone and I’ve made provision to make sure he has financial protection whatever happens to me. But were he to put a value on the support I may or may not give him, he would realise that it provides him with the peace of mind to carry out his studies without going mad with worry.

The business of running a pension scheme without a sponsor is  tough like going through university not knowing who will pay the next term’s bills.

The PPF, BSPS and risk

The PPF is one of Britain’s financial light-bulb moments. It is a well-run fund which invests prudently and manages its liabilities as it does its administration- with precision.

Sources close to the PPF (Rubenstein et al.) aren’t getting perturbed by the imminent arrival of BSPS. Infact, I hear they relish the opportunity to take on a scheme in good shape in all but parentage. There will never be a time when the PPF will be better placed to take on such liabilities.

If I had the choice as a member of the British Steel Pension Scheme of 100% certainty of reduced benefits being paid by the PPF or a 50% chance of (reduced) benefits being paid in full by not going into the PPF – I would have a reasonable choice to make. I could work out the risk and compare it to the drop in benefits (from the PPF) and make my choice.

The problem is that until GAD came along, both Government and the Trustees of the BSPS were telling anyone who’d listen that the original proposals were “low-risk”.

This is what GAD told the consultation on June 13th (ten days before the referendum).

“To eliminate most of the risk of the scheme being unable to meet its (reduced) liabilities in the absence of any sponsor support (ie self sufficiency) would require additional assets which we have estimated to be in the region of £3-£4bn,”

Political footballs?

Along with the radical plans for redistributing tax relief (which should have been part of this year’s budget), talking tough on pension deficits wasn’t part of the pre-referendum agenda.

Awkward

The expressions of Theresa May and David Cameron  suggest zero personal empathy. Perhaps she knew the mess she knew he was leaving her on pensions!

The Government Actuary, like the PPF is a Government institution that works. It was put in place precisely so we did not have to bend the law of the land for political expediency.

The 130,000 members of the BSPS are probably in a better place in the PPF than in the BSPS. According to the FT, GAD told the DWP

” the proposal was “broadly consistent” with a “50:50 expectation” of being able to pay members’ benefits in full, with “no additional reserves to manage materialisation of risks in future.”

Transparency is key

It is now nearly October, in the intervening three months, the 130,000 members of BSPS have heard very little about their pensions. We are told that talks are ongoing between Tata and German steel-maker Thyssen-Krupp. Talks are also ongoing with the unions.

In my opinion, the Government had no business floating the idea of a “low-risk” solution to the problem- till it had had the risk assessment from its own actuaries. That assessment came and the referendum went and it was only in the last few weeks that the plans for a sufficient BSPS have been shelved,

We now know why they were shelved. These plans were not “low-risk), no matter how the Government and the Trustees spun them.

People’s pensions are too important to be treated as political footballs. I don’t know how many votes this fake rescue plan won Remain but if it was one – it was one too many.

People deserve honesty from Government and that GAD report should have been put in the public domain on June 13th, not leaked through the FT on September 25th.

the law of diminishing u-turns