'Hard choices' for employer and unions ahead of Tata Steel pension vote, says expert

The National Trade Union Steel Co-ordinating Committee (NTUSCC), which is a coalition of representatives from the Unite, GMB and Community trade unions, has recommended that members vote in favour of a rescue plan for TSUK put forward by the company. Although not "without issues", the proposal is "the only way to protect the benefits [members] have already accrued and to provide a chance to prevent the BSPS free-falling into the Pension Protection Fund", according to the unions.

Pensions expert Nick Stones of Pinsent Masons, the law firm behind Out-Law.com, said that the proposal was about "hard choices and economic reality".

"A business that argues it cannot afford a defined benefit (DB) pension scheme has to do something about containing those costs," he said. "The unsaid implication is that if the employees agree to a less generous pension scheme for future service then the business may survive - jobs for pensions."

"The question is whether that can be delivered from both sides. Agreeing to this is such a personal choice because people have differing priorities depending on their own circumstances. The problem for the employer will be delivering. What no one will want is the worst of both worlds: a disputed pensions deal achieving only a short-term reprieve," he said.

BSPS is one of the UK's largest remaining DB pension schemes, with around 130,000 members. However, the majority of these are either already claiming their pensions or are 'deferred' members, who are no longer contributing to the scheme. Tata Steel, the Indian company which took over the now-privatised British Steel, is currently seeking a buyer for its struggling UK operations.

Under the proposed deal, BSPS would be closed to future accrual and 'decoupled' from its sponsoring employer TSUK in exchange for a final cash payment. The idea is that this will make the company more attractive to a future buyer. Members would then be transferred to a new, less generous defined contribution (DC) scheme.

According to the scheme's trustee, this new scheme would provide better benefits to the "vast majority" of members and pensioners than if the scheme was to fall into the Pension Protection Fund (PPF), the 'lifeboat' fund which provides compensation to members of DB pension schemes whose employers have become insolvent and are no longer able to pay the pensions they have promised. The new arrangements will have to be approved by the Pensions Regulator and the PPF before they can be taken forward.

In a letter to members (6-page / 203KB PDF), the BSPS trustee warned that the scheme was likely to report a deficit of between £1 billion and £2bn at its next actuarial valuation, which is due on 31 March 2017. The company has confirmed that it is no longer able to pay the contributions required to close this deficit, making insolvency a likely option, the trustee said.