The Mineworkers pension scheme is in the news and for all the right reasons.
At the Labour Party Conference, Ed Milliband delivered the following promise to Mineworkers with Government backed pensions
Just as we will do right by today’s generations in our energy policy, so we will do right by past generations that powered our country.
Across Britain, hundreds of thousands went down the mines.
Too often they paid the price in ill health, and even with their lives. I know it from my own constituency.
We owe them the greatest debt.
But we know there is unfinished business.
The scandal of the mineworkers’ pension scheme.
And so this Labour government will honour the promise in our manifesto to finally deliver justice to mineworkers and their families.
The Labour Party Manifesto is specific
Labour will end the injustice of the Mineworkers’ Pension Scheme. We will review the unfair surplus arrangements and transfer the Investment Reserve Fund back to members, so that the mineworkers who powered our country receive a fairer pension.
In 2021, a cross-party parliamentary inquiry advised that the government should stop taking funds from the scheme and deliver a fair deal for miners.
Recommendations were rejected by the government and data released to the BBC in March 2024 showed that the government has received three annual payments of £142.4m since then.
Labour MPs including Rachel Reeves, Ed Miliband, Darren Jones, Yvette Cooper, and Stephanie Peacock have been involved in a long-running campaign “demanding a better deal for miners” alongside organisations such as the National Union of Mineworkers (NUM).
The investment reserve currently sits at £1.6 billion.
This change will increase the weekly pensions received by miners by at least £14 per week, as estimated by the select committee.
Mick Newton, a former Thoresby miner and campaigner, expressed his delight at the announcement, calling it a “massive step forward” for former mineworkers, widows, and mining communities.
He said: “May I take this opportunity to thank all those who have campaigned on this injustice and express our thanks to the Mansfield Chad for the support given to us over the years.
Three comments in support of the Government and the Miners
1, The surplus was generated by the investment of the fund in growth assets by Mark Walker and his investment team. I wrote about this earlier in the year. One has to wonder why other schemes with a crown guarantee behind them (notably BTPS) messes around with leveraged LDI when they could have invested their fund accordingly. The surplus is as a result of people taking positive decisions about how pensions are invested rather than relying on gilts and the so called “zero risk” option, I have written on this before,
2, Sharing the upside of a DB fund , at the discretion of sponsor and trustees , can and should include members. The question for the Government is whether they wish to distribute the surplus as a one off bonus cash distribution, as extra pension or through a private sector arrangement such as an annuity or third party DB scheme such as Pension SuperHaven
3, The Government have committed themselves to member choice, perhaps the choice of how the money is paid should be with the mineworkers.
Giving back
Both mineworker schemes entered a natural endgame with the end of coal. The prudence emerged as surplus.
Many will think that this surplus should be returned to the tax-payer but those who know former mineworkers will know the high price they paid for their work. Miners have shorter life-expectancies and their pension promise, like their career, was curtailed with the end of extraction in the UK.
Ed Miliband’s words speak meaningfully to this. If we are serious in improving people’s later lives through funded pensions, we should offer our support to Government and mineworkers at this time.
Sadly the offer will come too late for many mineworkers who have passed away before their time. I hope that spouses and other dependents will also benefit.
I think the underlying message should be that a DB Pension Scheme exists for the benefit of the Members and their dependants.
All DB pension schemes should be invested to maximise Members’ benefits – firstly to the limit of the [discretionary as well as guaranteed minimum} benefits set out in the Deed and only once all those benefits are secured into the future should a surplus distribution out of scheme be considered. That surplus distribution should then be shared between members and scheme sponsors (whether employer or guarantor / capital provider) using the principles of Equity as indicated in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1990].
The question as to whether Trustees are fulfilling their investment duties in this respect by entering into buy-in or other risk transfer transactions is open to question. I have heard (heresay) that at least one group of members is taking legal action against the Trustees for entering a buy-in arrangement. I am not sure of the grounds for this action but could guess the allegation is that the Trustees are not fulfilling their statutory duty to diversify the investments of the Trust, identifying that the bought in asset must be reasonably expected to provide a lower return than alternative investments.
I’m not sure that I agree with the proposition that all surpluses should be allocated to members and other beneficiaries, particularly if sponsoring employers have been made arguably to “overfund” DB pensions in the past, to satisfy myopic actuarial advice and/or regulatory biases.
But the Coal schemes have a different history and I offer the following recap:
There are two Coal pension schemes.
The staff scheme was established after the nationalisation of the coal industry in 1947.
It was initially known as the National Coal Board Principal Superannuation Scheme (NCBPSS) and changed its name to the British Coal Staff Superannuation Scheme (BCSSS) in 1986.
The Mineworkers’ Pension Scheme (MPS) was introduced later, in 1952.
MPS contributions before April 1975 were paid on a flat-rate basis, with members paying no more than 20p per week.
Benefits payable in respect of membership before April 1975 were therefore relatively small.
After 1975 the contributions members paid, and the benefits that were earned, were both linked to the
annual pay that a member received, providing a higher level of benefits as a result of higher contributions paid.
The contributions paid by members did not, however, cover the full cost of providing the benefits, so British Coal paid the “balance of the cost of the benefits”.
British Coal’s contributions went up or down over time based on the amount needed to pay benefits.
In the late 1980s and early 1990s, many UK pension schemes found that their investments had performed better than
actuaries expected and arguably had more money than was needed to pay the benefits due to members.
In the MPS, these
surpluses were used to give members additional benefits and to reduce the level of contributions
paid by the employer.
British Coal received a final share of the pension surpluses before 1994, when the company was privatised.
The Coal pension schemes were valued in 1992/93 and half of the surplus was allocated to the employer, British Coal, as an investment reserve, which would be used if the schemes went into deficit.
The investment reserve was to be transferred to the government over 25 years. The 1994 privatisation agreement between the UK government and the trustees of the Coal pension schemes included the following:
The schemes closed to new members, and all contributions stopped.
The UK government guaranteed that pensions earned before privatisation would increase annually in line with the Retail Prices Index (RPI).
Any surplus would be shared 50/50 between the government and the scheme beneficiaries. That surplus sharing agreement continued for 21 years till 2015, and future benefits were then fixed, but member bonuses added up to then would not be clawed back.
I meant to qualify the first sentence:
I think the underlying message should be that a DB Pension Scheme exists for the benefit of the Members and their dependants over their lifespans.
Back in the very early 1990s, at GAD, I become tangentially involved becauae my boss was unwell. The trustees entered into a “surplus sharing” scheme, which involved 3 (I think) buffer funds so that any payments to HMG were staged very gradually. That the trustees then had buyers remorse doesn’t necessarily imply that the arrangements were unfair to the members, whose benefits were guaranteed. While I don’t know what would have happened if the trustees had offered a reasonable way out, I’m not aware that they even made an offer (but I wouldn’t have known).
“One has to wonder why other schemes with a crown guarantee behind them (notably BTPS) messes around with leveraged LDI when they could have invested their fund accordingly.”
When BT was privatised in 1984, the Government did provide the BTPS with a special protection in the form of a guarantee. This provides that, in the unlikely event of a winding up of BT Plc, most ongoing contribution obligations of BT Plc to the BTPS would be met by the Government (known as the “Crown Guarantee”).
As such, the Crown Guarantee doesn’t cover the benefits of individual members but rather enhances the security of member benefits in the BTPS overall.
It is important to emphasise that the Crown Guarantee is only relevant in the unlikely event of a winding up of BT plc and, in such circumstances, would enable the Scheme to receive ongoing contributions, if needed, to fund the payment of benefits.