The U.K. government has invited the pension fund industry to comment on proposals that include regulatory changes to help the British Steel Pension Scheme, part of a wider package to help rescue the country’s steel industry.
The £13.3 billion ($19.1 billion) London-based pension fund — one of the largest defined benefit plans in the U.K. — has a £700 million deficit.
The pension fund’s sponsoring employer is Tata Steel U.K., a subsidiary of Tata Steel Ltd. Tata launched a process to sell Tata Steel U.K. in April.
“Were Tata to sell TSUK, it is highly unlikely that a purchaser would be willing to take on the pension scheme as part of the deal — the cost and risk to the purchaser would be too high for a successful sale,” said a consultation document published by the government. “The scheme therefore needs to be separated from TSUK.”
The government is seeking comment from affected employees and members, and from those that pay a levy to the PPF for the pension funds that they sponsor, as well as “anyone with a general interest in pensions.” It has set out four proposals: the use of existing regulatory mechanisms to separate the BSPS from Tata Steel U.K.; the payment of pension debts by the sponsoring employer; the reduction of the pension fund’s liabilities through legislation; and a transfer to a new, successor pension fund.
The comment period ends June 23.
Allan Johnston, chairman of the board of trustees of the BSPS, said in a statement Thursday that the trustees welcome the consultation. “The trustee will be writing to members over the coming days to make clear its belief that, with government support, it should be possible to modify benefits so as to allow the scheme to remain outside the (PPF) indefinitely and on a low-risk basis.” Mr. Johnston said that, although this would mean future pension increases would be reduced from current levels, “benefits would be more generous than those provided by the PPF for the vast majority of scheme members.”
Joanne Segars, CEO of the Pensions and Lifetime Savings Association, in a news release warned the government to think carefully about its next move. “There’s clearly a strong need for the government to help save Tata Steel’s U.K. operations. While we recognize the role the pension scheme plays in this situation, we also urge the government to be alert to the fact that their actions in this issue could affect not only the members of the British Steel Pension Scheme but also the millions of other U.K. savers in defined benefit pension schemes.”