Mineworkers’ Pension Scheme Contents

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Summary

Since privatisation of the Mineworkers’ Pension Scheme in 1994, the Government has received 50% of surpluses in the Scheme’s value, in return for providing a guarantee that the value of pensions will not decrease. At the time it was expected that the Government would receive approximately £4bn from the arrangement in today’s money. However, to date, the Government has received £4.4bn, and is also due to receive at least another £1.9bn, on top of 50% off any future surpluses. The Government has not paid any funds into the Scheme in return.

The Government failed to conduct due diligence during the 1994 negotiations, and was negligent by not taking actuarial advice. There was no empirical analysis or evaluation to inform or support the 50:50 split, and it therefore remains arbitrary.

In this report we conclude that, in practice, the Government’s entitlement to 50% of surpluses is not proportionate to the degree of financial risk it actually faces. Given that the Scheme has continued to produce strong returns despite the 2008 Financial Crisis and the COVID-19 pandemic, there is little reason to believe the Government will be required to pay into the Scheme before it is wound-up. Even if, in extremis, the Government is required to financially contribute at some point in the future, realistically its contribution will not come close to the (at least) £6.3bn it is currently due to receive in total.

In this report we conclude that, with the benefit of hindsight, it is clear that the Government has already profited greatly from the Scheme. The Government must acknowledge that continuation of the arrangements in their current form deserves a review and a better outcome for pensioners should be found. We recommend that the current arrangements should be replaced with a revised agreement in which the Government is only entitled to a share of surpluses if the Scheme falls into deficit, and the Government has to provide funds. In that event, the Government should be entitled to 50% of future surpluses up to the total value of the funds it has provided to make up any shortfall. The Government should also relinquish its entitlement to the Investment Reserve, and transfer the £1.2bn fund to miners, to provide an immediate cash uplift to former miners.