Mineworkers’ Pension Scheme Contents

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4Changing the terms of the 1994 agreement

50.The Minister claimed that the Trustees are “happy” and “content” with the current arrangements which they consider to be “reasonable”.111 However, the Trustees have been consistently clear that this is not the case, and that they would support any changes, or combination of changes, to the rules which benefit members.112 As discussed earlier, the Trustees accepted the Government’s proposal because they understood the importance of the guarantee, even though they “were never happy” with the “totally unfair” 50:50 split attached to it as a condition.113

51.The terms of the 1994 arrangement can only be changed with the agreement of both parties.114 Rt Hon Kwasi Kwarteng MP, Secretary of State for Business, Energy and Industrial Strategy told us that the terms of the arrangement are “review[ed] all the time”.115 Rt Hon Anne-Marie Trevelyan MP, Minister of State for Business, Energy and Clean Growth told us that her “door is always open” for dialogue with the Trustees, and that she would be “very happy” to look at any proposed changes.116 The Trustees have formally asked the Government to review the Scheme on a number of occasions, and continue to raise the issue informally on an “ongoing” basis.117 However, the Government “has made it repeatedly clear… that it does not regard the 1994 arrangements as unfair and that it has no intention of agreeing to changes that are not in its interests”.118

52.Moreover, the Minister’s claim that her “door is always open” to discuss any changes appears to be undermined by the Government’s written evidence, which clearly states that any changes cannot be justified.119 It is notable that the Minister characterised any future discussions as primarily being about a binary decision between continuing with the current arrangement, or removing the guarantee altogether, which both the Trustees and the Government acknowledge is not in the Scheme members’ best interests.120

53.The Government is disingenuous in claiming the Trustees are content with the terms of the current arrangements. The Trustees have been clear that they are not - and never were - happy with the terms, and that they would welcome any changes in members’ favours. The Government should not mistake the Trustees’ acceptance of the deal for contentment.

54.We are disappointed by the Government’s dismissive approach to proposals to review the existing arrangement. The Minister’s claim of openness is contrary to the approach successive governments have taken since 1994. The Government must approach any future discussions with the Trustees with a genuinely open mind, and with the best interests of the pension members in mind.

Changing the surplus split

55.Throughout our inquiry a range of changes to the Scheme have been proposed. These have focused on changing the division of surpluses and distributing the Investment Reserve to members.

56.The NUM has argued that a 90:10, or even 70:30, split would be more appropriate.121 The Nottingham Section of the Union of Democratic Mineworkers suggested that reverting back to the 70:30 split would be “one way to reverse the impression of disproportionate Treasury take”.122

57.Similar proposals were suggested not long after the initial agreement was reached. After strong returns at the 1996 and 1999 valuations, the Trustee’s actuarial advisors produced some empirical analysis which suggested a fairer division of surpluses would be 85:15 (in members’ favour) rather than 50:50.123 However, Mr Cheetham reiterated that the calculations underpinning these proposals are not completely clear.124

58.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 pensions should be found. 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. Such an arrangement takes account of the vast funds the Government has received thus far and the significant reduction in the risk it faces, and would ensure that neither party will be out of pocket in future.

Distributing the Investment Reserve

59.The Trustees noted that, even if the 50:50 surplus sharing arrangement was revised in members’ favour - which they continue to support - this would not benefit members until 2024 at the earliest.125 Approximately 21,000 Scheme members will have died by then, and will thus not have experienced any benefit from a change in surpluses agreed today. Moreover, the impact of any future change of surpluses is inherently uncertain. As Chris Cheetham explained:

Clearly, the trustees would be delighted to see any increase in the share of surplus going to members[… but] a change in the surplus share, although very favourable, would lead to an uncertain impact, because we would not know how much members would benefit by until we got to the valuation in 2023 and then in 2026, and so on.126

Mr Cheetham argued that distribution of the remaining Investment Reserve fund therefore has the most potential to immediately benefit members:

An even better outcome for members would be to transfer some money across from, for example, the investment reserve, because that would have an immediate impact on pensions and would be a certain impact.127

The Trustees summarised their position regarding changes to the surplus split and Investment Reserve, as follows:

Any change that led to an immediate increase in benefits would be very welcome and might also be viewed by those members, in part, as a compensation for historic grievances over this issue. A change in the surplus share itself, while less immediate and certain in its impact, might contribute to a greater sense of fairness on the part of members going forwards.128

60.There is currently £1.2bn in the Investment Reserve fund.129 This fund is due to be transferred to the Government by 2029. If this £1.2bn fund was to be distributed to members, this would roughly equate to a £14 per week uplift for members on the average pension of £84 per week.130 If the £0.7bn in the Guarantor’s Fund, was also distributed along with the Investment Reserve fund, the average pension would increase by £22 per week.131 The NUM supported the Trustees’ proposal to distribute the Investment Reserve to members:

Given the actual results since privatisation it does not seem unreasonable and indeed fair for the Government to release the [Investment Reserve fund] to the Trustees to immediately increase pensions and renegotiate a fairer split of future surpluses going forward to reflect the reduced risk of guaranteeing the scheme.132

61.The Government maintains that distributing the Investment Reserve “can[not] be justified”, and that doing so “would remove the buffer in the Scheme and increase the risk of needing to find new money in the event of a deficit”.133 The Government also argued that the money contained within the Investment Reserve “was originally British Coal’s money, not that of Scheme members”.134 However, this assertion was challenged by those who gave evidence to us. Many argued that they paid their “dues” into Scheme during their working lives on the “promise” that doing so would provide security and a decent retirement for them and their families.135 Moreover, as the Trustees explained: “there is no [comparable pension scheme] where sponsors take money out of the scheme that they are responsible for; indeed, they cannot. Regulations do not enable it”.136 Changes to pensions legislation since the Scheme was privatised now place restrictions on the refunding of surpluses or assets to employers.137

62.Therefore, who the fund technically or notionally ‘belongs’ to as a consequence of the privatisation process will be immaterial to many we heard from. The fund is ultimately composed of and derived from the deferred wages paid into the Scheme by current retirees, on the understanding that they would be the ones to benefit in retirement. Many pension members will thus consider the Government to have a moral obligation to ensure the best possible outcome for beneficiaries, and that it is therefore “failing” in its “duty of financial care” as guarantor by continuing to withdraw funds from the Scheme.138 As one pension member put it: “the people who paid in are the ones who should benefit, it really is as easy as that”.139

63.Whilst we have called for the 50:50 split to be replaced with a more appropriate arrangement moving forward, we believe pensioners should also receive a more immediate uplift. We recommend that the Government hands the £1.2bn it is due to receive from the Investment Reserve back to miners, and sets out its proposals for how and when this will be administered in response to this report.