Mineworkers’ Pension Scheme Contents

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3Fairness of the current terms

24.The Scheme’s current Trustees and the National Union of Mineworkers (‘NUM’) argue that the current 50:50 surplus sharing arrangement is unfair.50 This sentiment was echoed in the written evidence and correspondence we received, which consistently criticised the 50:50 split as “grossly unfair”, “immoral”, and “a great discredit to all Governments since 1994”.51

Views of pension members

25.The Trustees explained that the Government’s guarantee elicits such strong emotions amongst the Scheme’s members because the pensions received through MPS “are still very low by any standard”.52 The Government, NUM, and Trustees accept that the historic pension arrangements under British Coal, and short pre-1994 service of many pension members, has contributed to the relatively low level of the guaranteed pension.53 A report into the Scheme commissioned by the NUM found that:

The principle reason why MPS benefits are relatively small is that the Scheme only provided what might be regarded as an acceptable level of benefits for what was a relatively short period, compared to the typical length of members’ working lifetimes in the coal industry. Prior to 1975 the Scheme only provided flat-rate benefits, that would now be regarded as inadequate … . As a result, large numbers of members with a lifetime of work in the industry have ended up with inadequate pensions, even when taken with the basic State pension.54

Chris Cheetham, Chair of Trustees, added:

The median [pension] is only £65 a week, so 50% of members have a pension of less than £65 a week, 25% less than £35 a week, and 10% less than £18 a week. When you think about those numbers, it explains why there is so much frustration and anger over the huge sums of money the Government have taken out of the scheme.55

The frustration referenced by the Trustees is shared unanimously by all the former miners and pension members who wrote to us. Mr Anthony Marrin, a retired coal face worker, told us:

[I] find myself having to make cutbacks on my spending to support myself and my wife, who is in ill health. I find it hard to understand how the government can justify maintaining the current 50:50 share agreement when it has already had over £4 billion and not contributed a penny towards the scheme. In the meantime thousands of former miners have died not having enjoyed their pensions, also leaving less miners in the scheme… Given the amount of money the government have creamed off our pension pot do they need to get a share of any surplus?56

26.Many of those who wrote to us highlighted that retired miners tend to live in some of the most deprived areas of the UK, and can often struggle to make ends meet.57 They suggested that the low-level of benefit paid by the Scheme, combined with rising household costs and food bills, has pushed some members into ‘pension poverty’.58

27.Former miners are disproportionately affected by chronic health issues directly caused by poor industrial conditions.59 Mr Paul Arnold, a retired miner, explained that the work in his previous occupation at the Shirebrook Colliery often involved “hard manual labour in difficult, wet, dusty, noisy, hot and cold conditions. At 58, I am now starting to see the health issues caused by working in the mines”.60

28.The National Mineworkers’ Pension Campaign added that the industrial diseases and chronic health problems caused by their former occupation, has contributed to many former miners being classed as clinically vulnerable during the COVID-19 pandemic.61 In some cases, this has had corresponding financial implications.62 Pension members also highlighted the sad reality that former miners with industrial diseases will be significantly more likely to contract or die from COVID-19.63 Mr Allen Salter, a retired miner who worked in Barnsley collieries, told us that this makes it more important than ever that a more equitable agreement is reached: “I believe that a lot of former Mineworkers have succumbed to the virus ravishing the Country, suffering from breathing difficulties, which makes it even more important that our voice is heard before it is too late”.64

29.The number of pension members is decreasing by approximately 7,000 members per year.65 A consistent theme in the evidence from pension members is that ‘time is running out’, and that if current Scheme members are to benefit from a new and more equitable arrangement, it must be agreed quickly.66 Keith Howe, a former British Coal employee from Barnsley, said:

As things currently stand the beneficiary ‘pool’ dwindles whilst the fund increases. An agreement must be reached before there are no beneficiaries left… Any decision will indeed be too late for thousands of mineworkers who have already left this Earth as a direct result of industrial disease and poor working conditions that workers/employers from today would be ashamed of.67

30.Some also argued that continuation of the surplus sharing arrangement in its current form appears inconsistent with the Government’s ‘levelling up’ agenda, and that changing the existing arrangements in members’ favour would help redress the economic damage caused by pit closures in the 1980s and 1990s.68 For example, Grahame Morris MP told us:

The majority of retirees remain in coalfield communities, which have never fully recovered from the loss in employment from heavy industry. Improving the retirement and quality of life for pensioners by increasing disposable income would benefit the wider local economy in coalfield communities. The more disposable income in circulation will act as a stimulus for these struggling local economies.69

When this proposal was put to the Minister, she was unable to provide a compelling or considered response.70

31.Many former mineworkers have chronic health issues directly related to their former occupation, and the former coalfields are amongst the most deprived areas of the UK. Sadly, their numbers are also decreasing year by year. Over half of Scheme members receive less than the average pension. Given the success of the Scheme, and the vast sums which have been paid to the Government, it is unconscionable that many of the Scheme’s beneficiaries are struggling to make ends meet.

The Government’s approach

32.Since 1994, successive governments have maintained that the terms of the guarantee serve pensioners well. The current Government told us the arrangements “work well and are fair to all parties”, for the reasons outlined below.71

Higher investment returns for members

33.The Government claims that the guarantee has ultimately resulted in higher returns for pensioners.72 It stated:

The guarantee enables [the Trustees] to invest so as to target higher returns which would be too risky to do without the guarantee. This has meant higher bonuses for scheme members and greater income for the Government.73

This point is also acknowledged by the Trustees, who agree that it has benefitted both parties, and has enabled them to adopt a high returns (and therefore, more risky) investment strategy which has resulted in the typical member’s pension being “around 33% higher in real terms than it would have been had they received only their actual earned pension up to privatisation”.74 The Government frequently reference this 33% figure when offering a view on the Scheme.75

34.The Trustees, NUM, and the vast majority of those who wrote to us agree that the Government’s guarantee is vital to safeguarding members’ pensions.76 The Trustees were clear that they “would not want to see the Guarantee weakened in any way”.77 However, they also noted that, whilst the guarantee has certainly benefited members, it is not possible to say whether members would ultimately have better off without the Government’s guarantee, because it is impossible to know how the Scheme would have been managed in the absence of a sponsor.78 This point was also made in written evidence by pension members.79

35.Some also took issue with the Government’s championing of the 33% higher returns, and argued that this must still be considered within the context of low basic pension values. Trevor Jones, a Scheme member, argued “an additional 33% for pensioners is in some cases 33% of a very small amount”.80

Risk to Government

36.The Government maintains that its responsibility as the Scheme’s guarantor constitutes “a significant contingent liability”, because in the event of a deficit it “would have to find the money to ensure pensions continue to be paid”.81 The Government argues that it is therefore “reasonable” and only “fair to taxpayers” that this liability is reflected in the surplus sharing arrangements.82 Historically the Government has also claimed that the “risk in the investment strategy has not been reduced”, and that this “increases the value of the guarantee”.83 The Department noted that changes made to the Scheme in 2019 relating to the protection of members’ accrued bonuses has increased the Government’s overall liability.84 The Minister argued that the current surplus sharing arrangement is therefore “proportionate”.85

37.However, the degree of risk Government faces in practice has been repeatedly questioned. The Trustees acknowledged that, whilst the Government is exposed to “some” risk, “even in the event of future deficits [it] is very unlikely to be required to provide immediate deficit funding”.86 Indeed, the Scheme was in deficit at the 2002, 2008 and 2011 valuations, yet the Government was not required to pay into the Scheme.87 This is due to the structure of the Scheme’s rules, which protect the Government from having to provide funds in the event of ‘short-term’ deficits.88

38.The Scheme has continued to deliver robust financial results in both 2008, and 2020, despite the downturn in global markets caused by the Financial Crisis and the COVID-19 pandemic.89 In the calendar year 2020 the Scheme delivered a return of 6.2%.90 Allen Young argued that given this, and the fact that the Government was not been required to provide funds during previous instances of deficits, there is no reason to expect that the Government will have to provide funds in the near future, let alone funds large enough to offset their gains from the Scheme so far:

It is very unlikely that, considering that they are on target to have £6.2 billion, they would ever be out of pocket. It would have to be drastic returns and probably a tail-end event. It would mean that we would completely run out of money in, say, 10 years’ time.91

The Wales Mineworkers’ Pension Campaign argued that, given that the COVID-19 pandemic “has not yet moved the taxpayer to offer help… in all probability the Scheme may never need bailing out”.92 Grahame Morris MP made a similar point:

While it is impossible to predict the future, if the Scheme can weather a global banking collapse and a near-total covid economic shutdown, there [would] seem to be few eventualities that would impact the Scheme to the point of requiring the intervention of the guarantor.93

39.Dan Whincup, Head of Pension Strategy, Coal Pension Trustees Ltd added that, although the Government does have a contingent liability, it is a “long-term one”, and that “the chances of them needing to put in over £6.3 billion are likely to be low”.94 Mr Paul Arnold, a retired miner at the Shirebrook Colliery, made a similar point:

Thirty years of investment has shown that any risk to a guarantor of the MPS is minimal. The government have not paid one penny into the scheme and are highly unlikely to be called on to do so. The first port of call in the current agreement if a shortfall ever materialised is to reduce the bonus part of the miners’ pension, if this is not sufficient the pension surplus is used. This arrangement further removes any risk to the government of having to make any contribution into the scheme. The markets have demonstrated that this is extremely unlikely. The question to be asked is, what is the true value of a guarantee that is extremely low risk and extremely unlikely to be used.95

40.Moreover, as the number of Scheme members and value of the fund naturally decreases, so too does the risk to the Government.96 When asked if the Government accepts this point, the Minister did not provide a response.97 The Minister did, however, confirm that the Government expects the Scheme’s returns to “consistently exceed the relevant rate of inflation”.98 The Minister also said that, although the Government is unable to quantify the likelihood of it having to supply funds due to a deficit, it nonetheless “remains a real risk”.99

41.Those who proposed revising the surplus split in members’ favour argued this would better reflect Government’s contribution to the Scheme to date.100 Mr Paul Arnold asked “what is the true value of a guarantee that is extremely low risk and extremely unlikely to be used”.101

42.The Trustees concluded that “careful consideration” should be given to how significant the Government’s risk is, and whether it is “proportionate” to the total funds it has received (and is due to receive) from the Scheme.102

Perceptions of fairness at the time

43.The Government argued that the 50:50 split is still appropriate because “at the time, all parties believed the equal sharing to be a fair settlement”.103 Binder Hamlyn’s advice to the NAO concluded that the Department had “determined the… arrangements responsibly and secured good benefits for pensioners”.104

44.However, Chris Kitchen, General Secretary, NUM, disagreed with the NAO’s conclusion, and argued that the Scheme has been “much better” for the Government, than pensioners: “given that the members are the ones who put the money in with the employers, British Coal, which is no longer in existence, it should be the members who benefit from it”.105 Mr Kitchen also highlighted that, whilst the NAO concluded in 1996 that the Government had “obtained good value for money” for itself through the surplus sharing arrangements, the report does not offer a view on whether the agreement represents good value for money for the Scheme’s members.106

Gains to the public purse

45.The Government argued that, “that the public purse has benefited from this should be regarded as a success as should the higher than anticipated bonus pensions”.107 However, much of the evidence we received implied that strong returns for HM Treasury is indicative of misguided priorities on the Government’s part.108 Nigel Favill, a retired British Coal fitter at the Bevercotes Colliery, described the current arrangement as “against the spirit of being a guarantor”.109 Similarly, Anthony Chiverton told us that the Scheme’s “main purpose” should be “to generate a sound investment policy to benefit the members”, and that “the time has come for the Government to stand aside. £6.3 billion is enough. Members have paid their dues in full and should now be the sole beneficiaries”.110

46.We recognise that the Government’s guarantee is important, has contributed to the success of the Scheme, and has benefitted Scheme members. However, we are not convinced by the Government’s argument that its entitlement to 50% of surpluses is proportionate to the relatively low degree of risk it actually faces in practice. The number of Scheme members and the relative size of the fund has fallen significantly since 1994. Yet, the Government’s ‘price’ for the guarantee has not been adjusted to reflect that fact. With no formal period review mechanism built into the agreement, pension members remain tied to an expensive arrangement.

47.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.

48.Whether or not the Government knew in 1994 that it would disproportionately benefit from the arrangement, and whether all parties thought it was fair at the time, is irrelevant. It is patently clear today that the arrangements have unduly benefited the Government, and it is untenable for the Government to continue to argue that the arrangements remain fair.

49.Governments should not be in the business of profiting from mineworkers’ pensions. We are therefore disappointed by the Government’s argument that the 1994 agreement is a success because the public purse has had strong returns from it. The Government is not a corporate entity driven by profit-motives, and should not view miners’ pensions as an opportunity to derive income. We also note that allowing the arrangement to continue would appear antithetical to the Government’s stated aim of redressing socio-economic inequality and ‘levelling up’ left-behind communities.