2Choices on offer to BSPS members
BSPS2 or the PPF
10.In late September 2017, the 124,000 BSPS members were given the choice of staying in the BSPS, and thereby ending up in the PPF, or transferring to the proposed new BSPS2 scheme. This exercise was known as “Time to Choose”. BSPS members were initially given until 11 December 2017 to decide. Allan Johnston, Chair of the BSPS trustee board, explained that the scheme would be liable to pay “£200 million it cannot afford” in benefit indexation if it did not move into the PPF by 29 March 2018.16 The December 2017 deadline would give time to assess the viability of BSPS2 and assign appropriate assets and liabilities to the two schemes.17
11.The “vast majority” of members would be better off in BSPS2 than the PPF.18 While BSPS2 indexation is lower than in BSPS, it is either equal to or better than the PPF. Unlike the PPF, BSPS2 does not cut starting entitlements for deferred members. It also calculates a spouse’s pension on a more generous basis (see table 1). In some specific circumstances, such as if the member wants to take early retirement or a tax-free lump sum, PPF compensation can be better than BSPS2. Given that those factors depend on member preference, the scheme was not in a position to state which, and how many, members would be better off taking each option.19
Table 1: Comparison of PPF and BSPS2 (New BSPS) benefits
The third option - transfer out
12.Deferred members of DB pension schemes who are more than one year away from their normal pension age (65 in the case of BSPS) have the right to request a cash-equivalent transfer value (CETV) of their DB entitlements and then, within three months of that quote, transfer that amount into a DC pension. This is known as a “DB transfer”. Once a scheme is being formally assessed for PPF entry, DB transfers are prohibited. In the case of BSPS, however, a transfer was a third option during the decision making process. To execute a DB transfer before BSPS enters the PPF, members need to submit paperwork by 16 February 2018.20
13.DB transfers may be in the interests of deferred members with low life expectancies. They offer readier access to cash than a DB pension and can enable members to leave larger bequests to family members. Final salary pensions, however, offer valuable, indexed benefits at minimal risk. The Financial Conduct Authority (FCA), which regulates financial services, said that, as a rule, a DB transfer was “unlikely” to be in someone’s best interests.21 Derek Mulholland, Director of Pensions at BSPS, concurred that, for the majority of scheme members, “transferring out was not the right thing to do”. The scheme had sought to emphasise that in its member communications.22
14.Uncertainty surrounding the BSPS contributed to a surge in interest in DB transfers. Over the year to 31 March 2017, while the future of the company was in doubt, the scheme completed 482 transfers compared to 170 in the preceding year.23 Stefan Zaitschenko, a former Teesside steelworker who helps run a Facebook group to support BSPS scheme members, told us that the approval of the RAA in August 2017 marked “the start of all the worries” for the scheme members because of the “lack of information”.24 As we have already noted, it was not clear for some members which of BSPS2 or the PPF was in their best interests. Rich Caddy, a British Steel Shift Operations Manager in Teesside who also helps run the members’ Facebook group, told us that the uncertainty was magnified because it would not be clear until the January 2018 viability exercise whether BSPS2 would proceed.25 BSPS members, many of whom had been largely passive pension savers, found themselves having to make major and irreversible choices about their financial futures.26 Younger workers, who may not have previously thought about pension planning, suddenly found themselves “being forced to make a life changing decision against hard deadlines”.27 In such circumstances, it was imperative that scheme members were adequately informed and supported in making those decisions.
Inadequate information
15.BSPS sent out personalised ‘option packs’ to every member,28 set up a Time to Choose website,29 and established free telephone helplines.30 It also held a series of roadshows across the UK (attended by about 13,000 people, or around one scheme member in ten). These communications were reviewed by TPR and PPF.31 TPR told us that its involvement led the trustee to strengthen its messaging regarding independent financial advice and pension scams.32
16.Despite this assurance, the options packs proved inadequate for many scheme members. Stefan Zaitschenko identified several failings. Pension entitlements and pensionable earnings did not tally with annual statements, and basic data such as employment start dates, which were essential for calculating accrued pension rights, were missing. TPR was alerted in October 2017 that 4,300 individuals had received option packs with gaps in basic data.33 The Pensions Ombudsman was reported to have been “flooded” with complaints.34
17.BSPS acknowledged that “some members have no personal figures in their option pack”, explaining that it did not have all the information it required in electronic format or have adequate data in time for members who transferred benefits in from one of 17 separate small schemes.35 Allan Johnston explained that BSPS2 would have different indexation methodologies for rights accrued for both service between 1997 and 2005 and service after 2005. This was not a feature of BSPS and therefore the scheme needed to make new entitlement calculations for all members affected.36 Mr Johnston said, however, that the overwhelming majority of members had “total and complete information” and the others, when combined with their latest benefit statement, had “sufficient information to make the choice”.37 The BSPS trustees stressed that their record-keeping systems were fully adequate to calculate and provide normal scheme benefits and “comfortably” met TPR’s principles of data quality.38
18.The BSPS did not provide members with personalised potential entitlements in the PPF for comparison with their BSPS estimates. The scheme told members that this was too complex a task for the time available, and that they had been left off at the PPF’s request.39 Stefan Zaitschenko said roadshow attendees were told that “the existing BSPS system and the PPF were in different formats and the exercise to prepare that data would take all the way up to almost the transfer date in March”. He said this implied that the provision of further information would detract “from the priority task, which was to be ready on transfer day.”40 Instead of personalised figures, the option packs contained generic example comparisons which “should help you get a good idea of what you would get, and how that compares to the new scheme”.41
19.The scheme helplines set up to guide members through their pension choices could only provide the same personalised information as the option pack.42 For more detailed requests, including on DB transfers, members had to contact the Pensions Office, the administrative function of the scheme.43 This had a staff of 18 people to cover 124,000 members.44 While it was acknowledged by scheme members to be an “extremely professional team”, it found itself overwhelmed with requests.45 Stefan Zaitschenko told us that one scheme member tried calling 207 times.46 Allan Johnston told us in December 2017 that the scheme had not predicted the “massive upsurge” of demand which “began when the scheme closed and it took off exponentially between April and now”.47 Alongside scheme members, the Pensions Office had to deal with calls from financial advisers who were keen to get transfer value quotes “to the top of the queue”.48
20.On 24 November 2017, The Pensions Advisory Service (TPAS), which provides publicly-funded guidance, set up a dedicated helpline for BSPS members. Henry Tapper, a pensions expert, told us that the TPAS service was “extremely sensitive to the needs of people”.49 It was, however, only set up two working weeks before the initial decision deadline of 11 December and, by that stage many scheme members would have submitted their transfer paperwork. Mr Tapper said “a number of members” had told him they wished they had spoken to TPAS earlier.50
21.Current and former steelworkers had to make very important, and often complex, decisions about their pensions by December 2017. They were woefully under-supported in making those choices. The hard work of BSPS trustees and staff in trying to rectify that should be recognised, but they were ultimately overwhelmed. They did not anticipate the levels of demand on their services, particularly from members interested in DB transfers. It was the responsibility of TPR, who oversee trustees and signed off the RAA, to monitor the situation and ensure that members were not left in the dark. Along with the PPF and the Government, they afforded insufficient priority to ensuring the steelworkers were adequately informed. While the setting up of a dedicated TPAS helpline was welcome, it came too late.
22.We recommend TPR conduct a review of the information and support provided to BSPS members as part of the Time to Choose exercise, incorporating feedback from the scheme members. This review should be published and form the basis of an action plan to counter risks in any similar cases in future. We further recommend that, in the context of a wider effort to enhance and digitise scheme record-keeping in readiness for the pensions dashboard, TPR require all schemes to be able to calculate what each member’s benefits would be under both statutory minimum indexation and PPF compensation rules.
Member engagement
Deadlines
23.Members who did not respond to the Time to Choose exercise would, by default, remain in the existing scheme and then move to the PPF in 29 March 2018. Fewer members than the BSPS hoped responded in advance of the 11 December deadline. Amid mounting concern about the number of non-respondents, BSPS announced on 1 December 2017 that it would extend the deadline for all members from 11 December to 22 December.51 Allan Johnston told us on 13 December that, of the 84,000 members who had responded, 89% had chosen BSPS2. However, around 30,000 members had yet to return their forms.52 He estimated that there would probably be around 20,000 non-replies by the revised deadline, which he described as “really sad”.53 On 29 January the scheme reported that 25,000 members ultimately did not respond. This figure includes people who may have opted not to respond as they wanted to default into the PPF (though members were urged to respond regardless), members who had decided to take a transfer payment, and those who failed to engage in the consultation for other reasons.54
24.Mr Johnston detailed the scheme’s efforts to encourage more members to make an active choice, including postcards, press advertisements, local radio, roadshows and encouraging BSPS pensioners to urge other pensioners to respond.55 He explained, however, that the scheme had 18,000 pensioners aged over 85 and 130 aged over 100. Some of these people had “not even opened the envelope”, sometimes because they had long been content with the BSPS scheme. He said that persuading an elderly person that the status quo was not in their interest and that they should move to the new scheme was “a very difficult message to get over”. He said that many of the scheme’s pensioners were “sadly [ … ] not capable of making these sorts of decisions on their own”.56
25.Alasdair McDiarmid told us that defaulting thousands of pensioners into the PPF was “something we desperately need to avoid” and called for the decision exercise to be suspended.57 Allan Johnston said that, as it was apparent that the new scheme would be viable, extending the deadline would be an option.58 It was not, however, clear that an extension to the deadline would make much difference in persuading the hardest to reach pensioners to participate. The PPF also cautioned that, though it had supported the extension to 22 December, that date “was the latest date possible in order to meet the agreed next steps under the terms of the framework agreement between the scheme and company”.59
Deemed consent
26.We also considered whether non-respondent members could be moved automatically into BSPS2. Under existing legislation, DB scheme members cannot be moved between schemes without their consent unless the receiving scheme is actuarially certified as providing equal or better benefits.60 As BSPS2 will offer lower benefits than the existing BSPS does now, this condition is not satisfied, even though BSPS is inevitably destined to end up in the PPF.61 In recognition of the size of the BSPS and concern from trustees about member engagement with a decision exercise, the Government asked for views on a system of “deemed consent” as part of its 2016 consultation. Under that proposal, regulations would have been amended to enable trustees to move scheme members without consent to ensure they ultimately received better than PPF level benefits.62
27.The trustees supported deemed consent as it would have enabled them to improve the position of members for whom a move into BSPS2 was indisputably in their interests.63 Alastair McDiarmid said deemed consent would have been a “gamechanger”, as it would have resulted in improved outcomes for many pensioners and freed up administrative resources to provide support to members whose choice was less clear-cut.64
28.Allan Johnston told us that the trustees lobbied the Government in favour of deemed consent for 18 months and had meetings with three successive Secretaries of State. Alasdair McDiarmid said Community union had also “lobbied hard” for deemed consent and it “was a possibility for quite some time”.65 However, it was ultimately not pursued by the Government. They have yet to publicly state why. Allan Johnston told us that it was because the precedent could potentially be misused by other schemes.66 Alasdair McDiarmid suggested that the “main reason” that deemed consent was not included as part of the BSPS2 deal was that Tata “would like BSPS2 to be as small as it possibly can be, to limit their exposure to the liabilities of that scheme”.67 Allan Johnston told us that, while a late intervention to bring about deemed consent would have been “wonderful”,68 the immovable timetable for transition left little time to achieve it.69
29.Despite the pension scheme’s efforts, 25,000 of its 124,000 members did not respond to the Time to Choose exercise. They are therefore heading for irreversible default into the PPF. Thousands of those members would have been better off in BSPS2, including some ill or elderly pensioners who may well have been unable to decide in their own interests. A longer deadline may have enabled more members to engage with the process. More clearly, a system of deemed consent would have ensured that members unequivocally better off in BSPS2 would have been moved there if they did not respond. That system would have resulted in better outcomes for pensioners and freed administrative resources to support members for whom the decision was less clear-cut.
30.The deal to save Tata Steel UK has been carefully constructed and has a tight timetable. It is vital that it proceeds. It is too late now to extend the decision deadline further or introduce deemed consent for this scheme. The Government should, however, draw on the BSPS experience and ensure that an adequate legislative framework is in place for similar future deals. We recommend that, in its forthcoming white paper on defined benefit pension schemes, the Government bring forward proposals for a system of deemed consent. This should enable the bulk transfer of members from a DB scheme certain to enter the PPF into an alternative scheme providing unequivocally better benefits than the PPF to those members. It should be used for future cases similar to BSPS.
19 BSPS Time to Choose website FAQ: “When you say ‘most members’ would be better off in the new scheme, why don’t you give an actual figure?”
20 BSPS Time to Choose website; Written evidence from British Steel Pension Members Group (PFC0096)
21 CP17/16: Advising on Pension Transfers, FCA consultation paper (21 June 2017)
23 Tata Steel workers cash in final salary pensions, Financial Times, 5 June 2017
28 Written evidence from the Pensions Regulator (PFC0100). Packs were received by members from 9 October 2017.
31 Written evidence from the Pensions Regulator (PFC0100) and Letter from PPF to Chair, 15 December 2017
33 Regulator probes missing data in British Steel pension deal, FT Adviser, 25 October 2017
34 Ombudsman flooded with British Steel pension complaints, FT Adviser, 5 December 2017
36 Q241 (Allan Johnston); Letter from Allan Johnston, BSPS Trustee Chair, to Chair, 13 December 2017
38 Letter from Allan Johnston, BSPS Trustee Chair, to Chair, 13 December 2017
41 BSPS Time to Choose website FAQs (“Why haven’t I got personal PPF figures to compare to the new scheme ones?” Date added: 13 October 2017) and member newsletters.
51 FTAdviser Steelworkers pension decision deadline extended 1 December 2017. Members who had obtained a CETV quotation due to expire on or before 25 January 2018 were granted an extension until 26 January 2018.
59 Letter from PPF to Chair, 15 December 2017
60 The Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (SI 1991/167) reg 12
62 DWP (26 May 2016) British Steel Pension Scheme public consultation Option 4. To give effect to the proposal, the Government would have needed to make regulations under section 73 of the Pension Schemes Act 1993 amending the Occupational Pension Schemes (Preservation of Benefits) Regulations 1991.
69 Letter from Allan Johnston, BSPS Trustee Chair, to Chair, 15 December 2017
9 February 2018