Advertisement

Tata seeks to bend rules

Government plans to overhaul the pension scheme behind lossmaking Tata Steel could set a dangerous precedent. Natalie Stanton reports.

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.

Advertisement - Article continues below

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.

Under the government's strategy, drawn up with trustees, the pension scheme would be spun off into a new financial vehicle, and the scheme's inflation-linked pension increases would be indexed to the consumer price index (CPI) measure of inflation, rather than the retail price index (RPI) measure.

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.

Advertisement
Advertisement

Recommended

Visit/513684/companies-cut-back-on-their-pensions-bills
Personal finance

Companies cut back on their pensions bills

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs. David Prosser reports.
28 Aug 2019
Visit/509683/good-news-for-savers
Pensions

Good news for pensions savers from HMRC

HMRC has withdrawn its appeal over breaches of the pensions lifetime allowance.
28 Jun 2019
Visit/personal-finance/pensions/601402/landmark-ruling-puts-pension-tax-relief-in-jeopardy
Pensions

Landmark ruling puts pension tax relief in jeopardy

Savers who made in specie contributions to pensions – transferring assets such as art or property instead of paying in cash – could face big bills
1 Jun 2020
Visit/personal-finance/pensions/601404/savers-tap-in-to-their-pensions-as-covid-19-saps-cash
Pensions

Savers tap in to their pensions as Covid-19 saps cash

Covid-19 hardship is leading record numbers of people to dip into their pension savings early.
30 May 2020

Most Popular

Visit/investments/commodities/gold/601444/these-seven-charts-show-exactly-why-you-must-own-gold-today
Gold

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020
Visit/investments/stockmarkets/601460/disease-rioting-and-mass-unemployment-so-why-are-markets-soaring
Stockmarkets

Disease, rioting and mass unemployment – so why are markets soaring?

Despite some pretty strong headwinds in the last year, America’s S&P 500 stock index is close to all-time highs. John Stepek explains why markets seem…
4 Jun 2020
Visit/investments/commodities/601433/commodities-possibly-the-biggest-opportunity-in-todays-markets
Commodities

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020