Report published by TPR on British Steel Pension Scheme restructuring
Monday 5 February 2018
The Pensions Regulator (TPR) has published a report on its decision to approve a major restructuring of the British Steel Pension Scheme (BSPS) by Tata Steel UK (TSUK) last year.
The regulatory intervention report (PDF, 183kb, 17 pages) covers key stages in the case including how TPR assessed the application from TSUK for a Regulated Apportionment Arrangement (RAA), and separately its proposal for a new pension scheme.
In early 2016, Tata Steel Limited decided that it was no longer prepared to continue funding TSUK, or consider funding a turnaround plan, without a restructuring of the BSPS.
Today’s report highlights how the restructure represented a significantly better outcome for the BSPS than would be achieved under the insolvency of the sponsoring employer, the only other remaining alternative.
TPR insisted that cash be provided upfront to the BSPS by the Tata Steel Group, which eventually offered a payment of £550 million, along with a 33% equity stake in TSUK.
The report again demonstrates that TPR will only agree to an RAA if stringent criteria have been met to prevent the process from being abused.
Nicola Parish, Executive Director for Frontline Regulation at TPR, said: “This was a highly complex case affecting thousands of pension savers. Our report highlights how we took a number of decisions to deliver the best available outcome for scheme members in difficult circumstances.
“The use of an RAA has a significant impact on scheme members - it means they will not receive the pensions they have been promised. This is why employers who are considering applying to us for one need to satisfy themselves, along with their scheme’s trustee, that insolvency is the only alternative and such an arrangement will provide a materially better outcome than the scheme would achieve in insolvency. It is also why we always consider whether we could achieve a better outcome through the use of our powers.”
The 125,000 members of the BSPS recently had to decide on whether to stay in the existing scheme, which will go into the Pension Protection Fund, or join a proposed new scheme. Today’s report outlines how TPR considered the proposal for a successor scheme.
The provision of a so-called ‘successor scheme’ is not a requirement for TPR approving RAA applications and it is rare for members to be given this option whilst an application is being considered. As the proposal was made at the same time as the RAA application, TPR considered both at the same time. However, the proposed new pension scheme was not a determining factor in TPR approving the RAA.
Establishment of a new pension scheme is not a foregone conclusion. Qualifying criteria still need to be met and a decision is due to be announced in March. The report shows that having completed its analysis, TPR concluded that, if qualifying criteria are met, funding risks under the new scheme’s benefit structure are manageable.
- The British Steel Pension Scheme regulatory intervention report is published under powers set out in section 89 of the Pensions Act 2004. More information can be found in our guide on how we publish information about cases (PDF, 60kb, 6 pages).
- The criteria that must be taken into account when considering whether to accept an RAA application are:
- whether insolvency of the employer would be otherwise inevitable or whether there could be other solutions which would avoid insolvency
- whether the scheme might receive more from an insolvency
- whether a better outcome might be attained for the scheme by other means including the use of our powers (for example, our anti-avoidance powers) where relevant
- the position of the remainder of the employer group
- whether the scheme is being treated equitably compared to other creditors
- RAAs continue to be rare. Tata’s application was the second TPR approved in 2017 and only the third in the last two years.
- For more information about RAAs, see our media guide (PDF, 248kb, 2 pages).
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only).
Matt Adams 01273 662086
David Morley 01273 662091