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British Steel Pension Scheme consultation - PLSA publishes its response

24 June 2016

The Pensions and Lifetime Savings Association (PLSA) has today published its response to the British Steel Pension Scheme (BSPS) consultation1 on the options for helping the scheme, steel workers and affected localities as a part of a wider package of Government support for UK Steel.

The PLSA’s response is built on certain outcomes it believes the consultation should achieve, these are: 

  • BSPS secures a sustainable solution for its members which is supported by the scheme’s trustees;
  • any solution implemented is not detrimental to the sustainability of  DB provision more broadly; and
  • Government commits to working with the PLSA’s DB Taskforce2, and the wider industry, to assess the challenges that DB schemes face when operating in the current DB environment and to develop solutions for addressing them.

Joanne Segars, Chief Executive, Pensions and Lifetime Savings Association, commented:

“It is inconceivable the Government can realistically consider these changes for the British Steel pension scheme without also considering amendments for all schemes, given that many defined benefit schemes face very similar challenges. While securing the best outcome for members of the British Steel pension scheme is of paramount importance in this instance it must be balanced against securing the best outcome for all defined benefit pension scheme members. 

“The nature of the proposed legislative amendments may have unintended consequences for the integrity of the current regulatory system. The extent to which the Pension Protection Fund’s role is compromised by the persistence of a scheme without a tangible employer has not been assessed nor has the fact that the ability of the Pension’s Regulator to pursue regulatory action in certain situations may be undermined.

“These proposals for the British Steel pension scheme have been drafted to meet an extraordinary situation but must not be allowed to become the default solution for any struggling defined benefit scheme. We urge the Government to commit to a long-term review of the current legislative system affecting defined benefit schemes to ensure their sustainability and call upon the Government to work with our Defined Benefit Taskforce and the wider pensions industry to achieve this.”

The PLSA believes there is a strong regulatory system in place and the Pension Protection Fund (PPF) offers good outcomes for pension scheme members when their scheme sponsor is unable to meet its obligations to the scheme in full. 

Accepting that the Government’s aim is to find a solution that minimises the risks to the UK steel industry and its workers the Association believes that, should a legislative option ultimately be required then, on balance, the Government should proceed with a modified version of option three set out in its consultation paper. This would include prospective amendments to the scheme’s benefits, via Section 67, as endorsed by the BSPS Trustees, so long as additional safeguards are put in place.

The additional safeguards the PLSA would like to see put in place are that:

  • the Government ensures legislative changes are scheme specific to the BSPS;
  • the Government ensures that the PPF and the Pensions Regulator agree whether the scheme is eligible for PPF protection and what legal entity will continue to support the scheme, ensuring that all necessary securities are put in place; and
  • the Government commits to a broader review of the legislative and wider challenges facing DB schemes.

This modified version of option three should enable the scheme to continue to provide good benefits for its members on a self-sufficient basis.

If these additional safeguards cannot be put in place, then the Government should proceed with option one, utilising the existing regulatory framework which will still provide good member outcomes. 

A copy of the PLSA’s response to the BSPS public consultation can be found here.

 

-ENDS-

NOTES TO EDITORS:

FOOTNOTES

Footnote 1: The British Steel Pension Scheme: public consultation was first published on 26 May 2016 and closes today (23 June 2016).

Footnote 2: The PLSA’s DB Taskforce was established in March 2016 to undertake a review of the challenges currently facing DB pension schemes and make recommendations to Government. The Taskforce is led by Ashok Gupta, Joint-Deputy Chair of the Bank of England’s enquiry into pro-cyclical investment by pension funds and insurance companies. He is joined by experts from across industry and academia.

Earlier this month the DB Taskforce opened its call for evidence on the challenges facing DB provision, which will close on 15 July 2016. The PLSA is encouraging anyone with an interest in the future of DB provision to engage with this call for evidence. Responses should be sent to [email protected]. The Taskforce will present interim findings at the PLSA's annual conference in October 2016.

The British Steel Pension Scheme: public consultation contains four options:

  1. Use existing regulatory levers to separate scheme from employer under Regulatory Apportionment Arrangement (RAA) or Flexible Apportionment Arrangement (FAA).
  2. Undertake a buyout at reduced benefit levels that are above PPF compensation levels.
  3. Reduce scheme liabilities through legislation by dis-applying Section 67 of the 1995 Pensions Act and allowing BSPS trustees to use scheme rules to reduce the levels of indexation and revaluation retrospectively. This change would apply to the BSPS only.
  4. Enable schemes to undertake a bulk transfer of members to a newly set up scheme that offers reduced (but higher than PPF) benefits. Bulk transfers to a new scheme that provides benefits in a different form are already permitted, but in order for the benefits to be reduced, member consent is required. This proposal would assume member consent but give members the right to opt out of the arrangement. This change would be applied to all pension scheme trustees. It seems to be envisioned that there would be a solvent or semi-solvent employer remaining as sponsor of the scheme. 

The PLSA’s response to the consultation

The PLSA believes there is a strong regulatory system in place and the Pension Protection Fund (PPF) offers good outcomes for pension scheme members when their scheme sponsor is unable to meet its obligations to the scheme in full. 

Accepting that the Government’s aim is to find a solution that minimises the risks to the UK steel industry and its workers the Association believes that, should a legislative option ultimately be required then, on balance, the Government should proceed with a modified version of option three set out in its consultation paper. This would include prospective amendments to the scheme’s benefits, via Section 67, as endorsed by the BSPS Trustees, so long as additional safeguards are put in place.

The additional safeguards the PLSA would like to see put in place are that:

  • the Government ensures legislative changes are scheme specific to the BSPS;
  • the Government ensures that the PPF and the Pensions Regulator agree whether the scheme is eligible for PPF protection and what legal entity will continue to support the scheme, ensuring that all necessary securities are put in place; and
  • the Government commits to a broader review of the legislative and wider challenges facing DB schemes.

This modified version of option three should enable the scheme to continue to provide good benefits for its members on a self-sufficient basis. This option is the preferred option of the BSPS Trustees, if the scheme would otherwise fall into the PPF.

If these additional safeguards cannot be put in place, then the Government should proceed with option one, utilising the existing regulatory framework which will still provide good member outcomes. 

PENSIONS AND LIFETIME SAVINGS ASSOCIATION

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