The government plans to overhaul the pension scheme behind lossmaking Tata Steel, despite warnings that it would set a "dangerous precedent". The plans would secure a better deal for the majority of members than entering the Pension Protection Fund (PPF) "lifeboat" and also save the PPF from taking on its biggest bailout to date.
Tata Steel UK's occupational pension scheme is viewed as a major hurdle to any rescue deal for the business, which employs 11,000 people. It has liabilities of almost £15bn, and the deficit has ballooned from £485m to £700m over the past year. The government reckons it would cost £7.5bn to buy out the scheme's benefits, which has been off-putting to potential buyers.
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As CPI is usually lower than RPI, this should shave billions of pounds off the value of future liabilities. There's just one catch it's illegal. The scheme's trustees have asked the government to exempt the scheme from the 1995 Pension Act, which blocks such changes being made.
Business Secretary Sajid Javid says the circumstances are "unique". But Hargreaves Lansdown's head of retirement policy Tom McPhail warns that this could "rip a hole in one of the most fundamental principles of pension provision" that once pension benefits are granted they can't be taken away. If other schemes did the same thing, it could cost pensioners across the UK some £200bn in lost retirement income, Jon Hatchett of Hymans Robertson told The Times.
Yet "it may be a blessing in disguise", added McPhail. Some final-salary pension schemes are unsustainably expensive, to the detriment of younger staff. The PPF simply does not have the capacity to bail out every final-salary scheme that is likely to run into trouble in the future. A review of the treatment of such guarantees might be the first step towards a more sustainable, long-term pension landscape.
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Steve Webb: The triple lock is there to do a job. I’m not embarrassed or ashamed of itThe triple lock means 13 million pensioners will now get an above-inflation state pension boost in April. While the rising cost of the policy has stirred controversy, Steve Webb, who served as pensions minister when it was introduced, argues the triple lock is vital and should stay. Webb speaks to Kalpana Fitzpatrick on the new episode of MoneyWeek Talks – out now.
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How retirement pots risk running out 11 years early if inflation remains highPension savers could find their retirement income may not last as long as they anticipated over fears that inflation may not slow down
