My favorite session of the PLSA (by some way) was the opening session of the third day when Derek Mulholland (CEO of BSPS through all its troubles) , the current Chair of Trustees- Keith Greenfield , its adviser – LCP’s Clive Wellstead and its insurer Legal & General’s John Toner, told us the happy tale of how BSPS is being put quietly to sleep.

Pensions will be  paid in full – according to the provisions of the Regulatory Apportionment Agreement (RAA), paid ultimately by Legal & General.

Background – this is a good “second best” news story

The RAA – arrived at between TPR, BSPS and Tata in 2017, created a second British Steel Pension Scheme that in most things mirrored the first. However, many of the discretionary increases that the original BSPS trustees could have applied – were wiped.

For instance, the hopes of steelworkers to have pre-97 GMP increases. These men were protesting outside the rusting Redcar works about their missing increases. Sadly they will not get them.

The current rules of the new BSPS give Tata the power to enforce the purchase of annuities that secure the benefits for members and inoculate the employer from further contributions to fund future pension payments.

It has been expected that the scheme would have reached this trigger for buy-out in 2026, the sharp rise in gilt yields mean that the price of purchasing the liabilities has dropped and that means that £7.5bn of annuities have already been purchased, meaning that BSPS is effectively a trust holding a bulk annuity policy that means Legal & General will pay the pensions of steelworkers who stayed in BSPS (the vast majority of the 120,000 steelworkers who were in the original scheme).

The good news story

The process by which this happened was the subject of the talk and the lively Q&A that followed. Sadly there were no steelworkers at the conference so this article is for those “outside the room”.

I approached the meeting with an open mind. I was not clear whether the “buy-in” from L&G was saving the member or shafting them

BSPS pension discussion- are the members protected or shafted by being bought out by @landg_uk ? #plsaannual23

— Henry Tapper (@henryhtapper) October 19, 2023

It soon became clear that all parties were very proud of what had happened since the establishment of the new BSPS.

When new BSPS had been set up, it had the assets of the old BSPS. Many of these would not have been suitable for an insurance company (in normal circumstances)

The BSPS buy-in included the transfer of many dozens of commercial properties from the trust to the insurer. #plsaannual23

— Henry Tapper (@henryhtapper) October 19, 2023

As Al Rush points out, these properties had deep ties with the local communities (ESG was a pension thing a century ago).

Ensuring that the farms and quarrymen’s cottages continued to be owned by benevolent landlords was part of the just transition of assets to L&G.

This transition was facilitated by a “strategic partnership” between the trustees and L&G overseen by LCP.

Mulholland said that trustees found their funding position improved through 2022 so fast that the original target of buy-in by 2026 was accelerated by 3 years. ‘It snowballed, he says the strategic partnership made this possible. #plsaannual23 https://t.co/l5AtqIWpOd pic.twitter.com/AJeSPA7QFH

— Henry Tapper (@henryhtapper) October 19, 2023

The issue for all parties was whether this partnership was anti-competitive, giving L&G too much control of the pricing of the deals (and effectively control of any surplus that arose).

There was no way of telling if VFM had been achieved. Even the BSPS and executive will never know if they achieved best value. But the rigorous discussion that formed the bulk of the meeting suggested that the sponsor (Tata) and the member’s interests were equally served. L&G got a cake to eat, hopefully not millionaire’s shortbread.

The question of whether the members were “shafted” by the buy-in and future buy-out fell away when Mulholland made it clear that there were no trustee powers to make discretionary increases beyond the promise of the new BSPS set up by the RAA.

There was no option to run-on the scheme once Tata had made it clear that it would exercise its right to buy out when the scheme met a trigger target of 103% of PPF funding

Mulholland said that trustees found their funding position improved through 2022 so fast that the original target of buy-in by 2026 was accelerated by 3 years. ‘It snowballed, he says the strategic partnership made this possible. #plsaannual23 https://t.co/l5AtqIWpOd pic.twitter.com/AJeSPA7QFH

— Henry Tapper (@henryhtapper) October 19, 2023

All shall be well and all manner of things shall be well

The divine revelation made to Julian of Norwich in the 15th century was the revelation made to yesterday’s audience.

Of course there was another way, but the decision not to park BSPS in PPF assessment in 2017 was ditched in favor of an RAA which in retrospect may not have served all members well. The PPF assessment period would have protected members from rogue IFAs as it is a period when no transfers can be taken. If the scheme had remained in assessment – it might even have been floated back into solvency using a capital backed journey plan to reinforce the weak covenant from Tata. All these things are however – for the birds. The RAA happened and at great expense and it did at least keep Tata happy enough that we still have a steelworks in South Wales.

The injury to steelworkers – first in Scunthorpe and then in Port Talbot is too well documented to form part of this article, other than to say – it was avoidable.

The injury to BSPS deferred and actual pensioners, from the RAA can never be calculated as it depends on the imponderable performance of BSPS, had it been let alone.

Much went missing as a result of the RAA – including hope.

But the story for deferred and actual pensioners since the establishment of new BSPS is as good as it could have got. For that we have the participants of the meeting held in Manchester on 19th October 2023, to thank.