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

Last Updated: 27 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
25 Apr 2017, Seminar, Milton Keynes, UK

The employment landscape is one that is constantly shifting. Employers who fail to keep up with the changes do so at their peril.

25 Apr 2017, Seminar, Milton Keynes, UK

The employment landscape is one that is constantly shifting. Employers who fail to keep up with the changes do so at their peril.

We are pleased to invite you to this seminar, designed to help in-house counsel and HR practitioners get to grips with key recent and forthcoming developments in employment, pensions and immigration law and practice and what they mean for your workforce.

26 Apr 2017, Other, Munich, Germany

The event is going to take place on 26 April 2017 and is addressed to participants of the Berlin Real Estate sector, in particular those dealing with redensification such as investors, developers, brokers, urban housing associations and engineers.

 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.