The news that members of the British Steel Pension Scheme will have the choice between swapping their pension rights for participation in the Pension Protection Fund of a new Pension Scheme (code-named BSPS2) has been well flagged.
It might seem Hobson’s choice, neither are as likely to offer quite the same benefits as staying in the original scheme but that will not, it seems , be an option.
On the face of it , people should look to the upside potential of BSPS2 to pay more but there are some (see previous blogs on this matter) for whom the PPF will give better commutation and early retirement factors ) – in particular those in an uncertain corridor prior to retirement (the so called high-lows).
There is a simply excellent analysis of the knowns and the unknowns (and thankfully no speculation on the unknown unknowns) which appears in Professional Pensions. Stephanie Baxter has clearly been given some advance notice as this piece of writing is both detailed and extremely clear.
It suggests that the messaging to members (as well as to the pension professionals) is likely to be clear vivid and real. I had some peripheral involvement in briefing those who are involved in this and know that the Trustees are not stinting in ensuring that as many members as possible take not just an informed choice, but a choice that they understand and recognise as right for them.
This is no mean undertaking, there are 130,000 people in this scheme, 80,000 are pensioners , only a relatively small number still work for Tata Steel and there are over 100 pensioners who are over 100. The challenge of dealing with a diverse set of decision makers , for whom every decision is potentially life-changing , should not be downplayed.
For those still working for the new merged company that emerges from the current negotiations , there will be a right to a pension contribution from the employer but no defined pension rights arising. Steel workers will have to face further uncertainty with regards to their future service which is unfortunate. The future offered in British Steel (to Nigel) was one of certain outcomes after a long and arduous working life. It never included the kind of choices that members will have to make on pension technicalities today and on investment probabilities tomorrow.
I don’t want to make a political statement , but I sense that the Regulated Apportionment Arrangement that grants Tata a high level of immunity from future pension risk, is a very complicated way of doing a simple thing.
It would have been easier, as it would for the postal workers at the Royal Mail, those working at Halcrow and Hoover Candy and the former shop workers at BHS, if a “target pension” could have established along Dutch or Canadian lines. Such arrangements put trust in the long-term capacity of the world economy to deliver returns capable of paying incomes for so long as those incomes need to be paid. Of course those incomes cannot be guaranteed, if there is no sponsor willing to pay for the guarantee, but there is sufficient flexibility in the conditionality of benefits in these foreign models to offer impacted members, not just some certainty on past benefits but greater certainty on future benefits.
We still have the opportunity to write up the secondary legislation from Pensions Act 2015 to make these kind of arrangements an option for the trustees of large schemes such as those mentioned above, I hope that the forthcoming DB white paper may look again at those options.
Sadly, the reports I have heard, including from some BSPS trustees, is that there are many BSPS members who have cried a plague on all their houses and have or are voting with their feet to be out of either arrangement. “Factory-gating” is rife, with lead-generators seeing plenty of interests in the services of anyone who is prepared to adviser on Cash Equivalent Transfer Values (CETV). The fear is that some of those prepared to advise, are in no position to advise.
One thing is for sure, that the Trustees of BSPS are taking the plight of their members very seriously. If members decide to take a CETV, they had best take it before their rights are transferred to BSPS 2 (there will be no opportunity to take a CETV from the PPF). But I hope that many members will recognise the huge burden they will be taking on paying their own wage in retirement.
The BSPS was commonly regarded as one of the best managed pension schemes in the country with low administrative costs, an excellent pension investment function and with the very best advisers. None of this should change as BSPS moves into BSPS2 and it would be a great shame if heart ruled head in decision making.
The Trustees are clearly doing a great job in outlining options. Clearly they hope that the majority of members will not jump ship (while recognising that for some – taking a CETV will be their best option). I wish them well in their task of presenting these hard choices to people who should never have had to make them.
The great sorrow is that it has come to this.