Business

Tata steel pension changes 'unique' to firm

Steel workers protest in London, Britain, 25 May 2016. Image copyright EPA

Proposals to change Tata's pension scheme would be unique to the company and would not be applied more broadly, Business Secretary Sajid Javid has said.

Speaking in Parliament, Mr Javid said he was "wary of setting a precedent".

Tata is looking to sell its loss-making UK business but the pension deficit is said to be hampering the process.

However pension experts warned earlier that the changes could take ministers down a "dangerous path".

Mr Javid has launched a consultation to consider the financial situation of Tata's UK pension scheme. He said the government was considering the proposals at the request of the trustees of the pension scheme and that any changes would need the approval of the regulator.

He stressed that several options were being considered.

"No decision has been made. We are wary of setting a precedent," he said.

"This is very much about this scheme and this scheme only, in very unique circumstances."

Image copyright Reuters
Image caption Business Secretary Sajid Javid says there are several pension options under discussion

How steel workers' pensions could be hit

One option under discussion is to base the scheme's annual increase on the Consumer Prices Index (CPI) inflation measure, which is usually below the Retail Prices Index (RPI) measure currently used.

Public sector pensions have been linked to the CPI index since 2011.

This is the path favoured by the British Steel Pensions Scheme as they say it would leave most of the pension holders either better off or no worse off, compared with entering the Pension Protection Fund (PPF), which is the likely alternative.

'Unmitigated disaster'

The PPF is a pensions lifeboat, funded by companies, designed to protect pensioners if their scheme were to go under. However, steel workers would be worse off under it.

The company and the steel trade unions also welcomed the consultation, with the union saying that entering the PPF would be an "unmitigated disaster".

"We need to ensure that there are cast iron safeguards in place so this unique situation does not result in employers dodging their pensions responsibilities," the union added in a statement.

In total the British Steel pension scheme has 130,000 members. The scheme has a deficit of £485m.

'Dangerous path'

Earlier, former Lib Dem pensions minister Steve Webb said: "The government is going down a very dangerous path.

"Everyone has huge sympathy for steel workers and for efforts to protect jobs, but rushed changes to pension rules risk driving a coach and horses through the pension security of hundreds of thousands of workers well beyond the steel industry."

Meanwhile the pensions expert Tom McPhail from Hargreaves Lansdown said: "The potential deal on British Steel could rip a hole in one of the most fundamental principles of pension provision. It is well-established that pension benefits, once granted cannot be taken away."

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