"Quick Fix" on Tata Steel risks undermining pension security for millions - Steve Webb, Royal London
23 May 2016
A 'quick fix' on the British Steel pension scheme to help save jobs at Tata Steel UK could risk undermining the pension security of millions of people, according to Steve Webb, Director of Policy at Royal London. As the deadline for bids for Tata Steel UK approaches, it is reported that potential bidders are unwilling to take on the liabilities of the company's pension scheme.
Business Secretary Sajid Javid is believed to be looking at options which could allow the business to continue under new ownership with the pension fund deficit being reduced in part by scaling back the rights of existing pension scheme members. Measures to reduce members' rights could include using the generally lower Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) to calculate the level of inflation protection.
The risk of such an approach is that it may set a precedent where other employers who could do more to fill gaps in their pension scheme choose instead to avoid some of their pension liabilities.
The latest official figures produced in May 2016 by the Pension Protection Fund showed that four in five Defined Benefit pension schemes are currently in deficit (4,804 schemes out of 5,945) and that the collective deficit of all DB schemes stands at a massive £270 billion. If a deal at Tata allowed other employers to scale back their deficit by taking away pension rights that had already been built up, the pension rights of millions of workers and pensioners could be at risk.
Commenting, Steve Webb, Director of Policy at Royal London said:
"The desire to save steel jobs is entirely understandable, but there are huge risks if a 'quick fix' for this problem were to undermine the carefully constructed pension protection framework. The pensions of millions of workers and pensioners depend on employers honouring the pension promises that they have made. A deal on Tata must not create a precedent or a loophole which could be exploited by firms keen to walk away from their pension liabilities. Ministers must tread with extreme caution in this area.”
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About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with Group funds under management of £87.9 billion. Group businesses provide around 9.1 million policies and employ 3,051 people. (Figures quoted are as at 31 March 2016).