UK: The Government's Consultation On Pension Increases In The British Steel Pension Scheme

Last Updated: 30 June 2016
Article by Elmer Doonan, James Borshell and Michael Bronstein

The DWP's consultation on changing the law to allow pensions increases to be reduced to the statutory minimum in the British Steel Pension Scheme (BSPS) ends on 23 June.  It is likely that one of the proposals in the consultation will be adopted, perhaps, in a modified form within a short time thereafter.

The BSPS has a deficit of £7.5 billion on a section 75 (or buy-out) basis.  Tata Steel, the sponsoring employer, cannot meet that liability and there is no realistic possibility that anyone will buy Tata Steel with that liability attached to it.  Separating the BSPS from Tata Steel would, we are told, save the steel industry, and this is the main aim of the proposals.  Another aim of the proposals is to put BSPS members in a better position than they would be in if the BSPS entered the PPF.  The consultation paper notes that the PPF would have to find £1.5 billion if the BSPS entered the PPF to provide its members with PPF compensation.  That would force the PPF to increase its levies to other pension schemes.  If  BSPS members' pension increases (and revaluation) are reduced this would improve the funding position of the BSPS and enable it to be run outside the PPF with a new sponsoring employer in place of Tata Steel.

The proposals

Two main proposals in the consultation would reduce revaluation of deferred pensions and increases in pensions in payment.  These are:

Proposal 1.  Regulations permitting BSPS to reduce revaluation and increases.

Section 67 of the Pensions Act 1995 prohibits a reduction in a member's accrued pension rights without their consent. This  includes the right to revaluation of a deferred pension or increases to a pension at the amounts specified in the rules. For example, if pension scheme rules provide for fixed 3% increases then section 67 makes it unlawful to reduce them to 2%.  If, as appears to be the case in the BSPS, increases are based on RPI up to various ceilings it would normally be unlawful to change the capped RPI basis to the lower capped CPI basis. Proposal 1 is that regulations are introduced by the Government to dis-apply section  67 to the BSPS and allow it to be amended so that, in effect, increases are limited to CPI up to 2.5%.  The Regulations would (i) enable the BSPS Trustees to make the change unilaterally without member consent; (ii) require the BSPS Trustees to decide this was in members' best interests; and (iii) require the BSPS Trustees to agree the change unanimously. 

Will Proposal 1 work?

It is questionable whether this proposal is consistent with the Humans Rights Act 1998 and, in particular, the Government's obligations under Protocol 1 Article 1 of the European Convention on Human Rights. Article 1 protects the property rights of an individual from interference by the state unless this is in the public interest.  The right to a pension increase almost certainly falls within Article 1. The only issue is whether the proposed change would be in the public interest.  It may be in the public interest to save the steel industry but that does not mean it is in the public interest for BSPS members to be forced to sacrifice their rights to achieve this aim.  If this proposal is implemented the risk of a challenge will be high. That could come from a BSPS member or a spouse or dependant who has a contingent interest under the BSPS.  One might expect BSPS members to ask why the Government did not propose that it would assume responsibility for the BSPS liabilities as in the Royal Mail Pension Scheme rather than interfere with their pension increases.

The BSPS Trustee must decide if the proposal is in members' best interests.  The consultation paper says that 70,000 members would see little change, over 50,000 deferred members would see a minimum 10% reduction in their pensions and 776 would benefit. Why should the deferred members be asked to make the sacrifice?  This would be a huge decision for the Trustees and it is possible that they would seek directions from the court on this issue rather than risk objections from deferred members.  In addition, the BSPS Trustees must act unanimously.  Will a unanimous decision be possible in a Trustee board of 14?

The Government has said that the BSPS is a special case and it does not intend to extend the proposal beyond the BSPS.  There are many pension schemes in a poor funding position and if this proposal is adopted expect others to follow.  If adopted, this proposal would set a terrible precedent that the Government may regret.

Proposal 2. Transfer to a new scheme

Regulations permit a bulk transfer of members from one pension scheme to another without member consent but only if the benefits under the receiving scheme are broadly similar to those in the transferring scheme. A bulk transfer to a receiving scheme offering poorer pension increases would not be possible under current law. Proposal 2 is that the bulk transfer regulations should be amended to allow trustees to make a bulk transfer to a scheme providing a lower level of benefits but only if (i) the trustees consider this to be in members' best interests; (ii) they notify each member and a member does not object in a specified time; and (iii) the trustees reasonably believe the scheme will enter the PPF in the next 12 months.  With these changes a new pension scheme could be set up (probably with a new sponsoring employer) which mirrors the BSPS save that it provides lower pension increases. There would be a bulk transfer without consent of BSPS members to the new scheme unless they explicitly chose not to transfer. The BSPS would enter PPF assessment as a means of divesting it from Tata Steel and those members who did not consent to the transfer would end up in the PPF. 

Will proposal 2 work?

Proposal 2 does not attract human rights issues.   If adopted, members would be given a choice as to whether they moved to a new scheme with reduced increases or ended up in the PPF. That would reflect the financial reality that the BSPS must face.  Some members who would be better off in the PPF would be able to refuse consent to the transfer to a new scheme.  Members who would not benefit from being in the PPF would have the chance to do better outside the PPF. What is not clear is whether the proposal will enable contracted-out rights to be transferred to the new scheme as, currently, it is not possible to set up a new contracted-out scheme and these can only be transferred to a former contracted-out scheme.

Proposal 2 is not confined to the BSPS.  It could be adopted by other employers who wish to restructure a heavily insolvent employer in order to deal with the pension scheme.  It may provide a solution to cases such as Pollock v. Reed [2015] EWHC 3685 (Ch) where the object was to set up a new scheme with reduced pension increases but the court ruled this could not be done under the current bulk transfer rules.

Under proposal 2 the Trustees will have to decide if a bulk transfer is in the members' best interests.  The Pensions Regulator and the PPF will be involved in any restructuring seeking to set up a new scheme with reduced increases so employers should not view it as a quick and easy solution to resolve their pensions problems.

If proposal 2 is implemented, it may need to be supported by guidance on the calculation of the bulk transfer amount to ensure that the assets are appropriately divided between the old scheme and the new scheme.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
6 Sep 2018, Business Breakfast, Glasgow, UK

Decarbonising our heat is a key component of The Scottish Energy Strategy and an essential piece of the complex matrix we must tackle if we are to meet our climate change obligations.

11 Sep 2018, Business Breakfast, Milton Keynes, UK

Join us for our next development breakfast round table event reflecting on the on-going planning discussion regarding the Oxford-Cambridge corridor and helping you consider how best to cash in on the exciting opportunities by considering the benefits of promotion and option agreements.

20 Sep 2018, Seminar, London, UK

Environmental regulation and liability have risen up the boardroom agenda over the past decade. Recent changes to environmental sentencing have brought this area of risk even more into focus.

Similar Articles
Relevancy Powered by MondaqAI
Wedlake Bell
Wedlake Bell
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Wedlake Bell
Wedlake Bell
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions