1.During our ongoing inquiry into pension freedom and choice we received worrying evidence regarding financial advice provided to members of the British Steel Pension Scheme (BSPS). We heard reports of large numbers of BSPS members requesting to transfer their defined benefit (DB) final salary pensions into defined contribution (DC) pension pots. We also heard concerns about the conduct of financial advisers and other intermediaries. We therefore took specific evidence on the BSPS. This report focuses on the choices faced by BSPS members in 2017. It does not examine the adequacy of the earlier pension settlement.
2.We intend to produce a separate report on broader pension freedom and choice issues. We also produced a report on the Financial Guidance and Claims Bill, in which we recommended that legislation be amended to provide for free guidance on pension freedoms by default and to ban pension cold calls.
3.The BSPS is a large pension scheme sponsored by Tata Steel UK. On 30 June 2017, the main DB section of the scheme had 124,000 members, comprising 82,000 members who were receiving their pensions and 42,000 others, known as deferred members, who were yet to do so. Just over 8,000 of those deferred members were current employees of Tata. Many of the deferred members are long-serving staff who have been looking forward to a secure retirement after decades of arduous physical labour.
4.The steel industry was once a major employer in the UK. At its peak in the early 1970s, over 300,000 people worked in steel production. In the face of growing international competition, the industry has been in decline in recent decades, a process accelerated by the 2008–09 global recession. Combined with increased automation, this has contributed to a sharp decline in employment in the industry. Current employment in Tata Steel UK is dwarfed by membership of the BSPS.
5.Though steel is now a small UK industry, accounting for 0.1% of gross domestic product, the industry is heavily concentrated in a small number of less affluent areas. Tata Steel UK makes steel in Port Talbot in South Wales, and manufactures steel products in Caerphilly, Llanelli and Shotton in Wales and Corby, Hartlepool and Walsall in England. The steel industry is vital to those and other deindustrialising areas, as both a direct employer and in more broadly supporting the local economy.
6.In March 2016, in the face of continuing adverse conditions in the global steel market and reported losses of £2 billion over five years, the Tata Steel UK board announced that it would examine options to restructure the business. This raised the prospect of the DB pension scheme being decoupled from the company. While the scheme’s assets covered 98% of its liabilities in 2016, a funding ratio far superior to many other schemes, there was considerable doubt about the ability of the company to continue both to operate in the UK and to meet pension obligations estimated at £14 billion. Alasdair McDiarmid of the Community trades union told us that Tata Steel UK would have been unable to afford adequate ongoing deficit recovery contributions.
7.When a company will inevitably be insolvent if it continues to sponsor a pension scheme it can apply to the Pensions Regulator (TPR) for a Regulated Apportionment Arrangement (RAA). Under an RAA, the scheme usually enters the Pension Protection Fund (PPF), which pays reduced benefits to members of schemes without sponsoring employers. Unusually, while Tata Steel UK appeared inevitably insolvent if it remained responsible for its pension scheme, that scheme was well enough funded to pay benefits above PPF levels. In May 2016, the Government launched a public consultation on options for helping the BSPS as part of a wider package of government support.
8.Though the Government has not made a formal announcement on the outcome of its consultation, the terms of a deal intended to keep Tata Steel UK in operation have gradually been put in place:
The RAA provided sufficient certainty to enable Tata Steel Europe (which includes the UK subsidiary) to progress its plans to merge with the European steel operations of ThyssenKrupp, a major German conglomerate.
9.The UK steel industry has been in long-term decline, and Tata Steel UK had become a large pension scheme with a shrinking company attached. The deal to maintain steel production in Port Talbot is very welcome. The outlines of that deal have been in place since May 2017. That ought to have been more than enough time to ensure that scheme members were adequately supported in the decisions they would need to make.
1 Work and Pensions Committee, Third Report of Session 2017–19, , HC 404
2 BSPS . The BSPS also contains a much smaller .
4 (David Neilly)
5 ONS (2016)
6 and ONS (2016)
7 Tata Steel employs around 8,500 in the UK. Source: Tata, [accessed January 2018]
8 Tata, [accessed January 2018]
9 British Steel Pension Scheme . The showed a deficit of £485 million as of March 2015, with a funding level of 97%.
10 (Alasdair McDiarmid)
11 PPF compensation is uprated less generously than under most scheme rules. Members who have not reached the scheme pension age also have their benefits cut by 10%. For full PPF compensation rules see the PPF .
12 DWP (26 May 2016)
13 Tata Steel press release (7 Dec 2016)
14 Written evidence from the Pensions Regulator ()
15 , 16 May 2017
9 February 2018