TATA Steel British Steel Pension Scheme Deal

Types of Pension Plans

Members of the British Steel Pension Scheme (BSPS) have finally been given some clarity over their pensions. After months of negotiations, Tata Steel has struck a deal to detach the £15 billion BSPS, in a move that should bring greater financial stability to the 130,000 members of the scheme.

The deal involves a legal mechanism called a Regulated Apportionment Agreement (RAA), which enables an employer in financial trouble to separate itself from its defined benefit pension liabilities. The deal has been signed off by The Pensions Regulator (TPR), the trustee of the BSPS and the Pension Protection Fund (PPF), although there is a 28-day period for legal challenges. According to the BSPS website, the RAA is expected to take effect on or about 11th September 2017.

Under the terms of the deal, Tata Steel will make a one-off payment of £550 million into the BSPS, and will hand the scheme a 33% equity stake in Tata Steel UK Limited, which includes the Port Talbot steel works in South Wales. Tata Steel will also have to pay a levy into the PPF.

Pensions Regulator Chief Executive Lesley Titcomb commented: “We do not agree to these types of arrangements lightly but after several months of robust negotiations in this case, we believe that it is the best possible outcome for everyone involved in what is a very difficult situation.


How the deal affects members

All members of the BSPS will be invited to the new pension scheme and will have the choice to transfer to the new scheme, or alternatively, stay in the current scheme and eventually be transferred into the PPF.

The PPF provides compensation to members of defined benefit pension schemes when a scheme has insufficient assets to cover the payments owed, although benefits are usually reduced.

The benefits offered by the new scheme are expected to be superior than those on offer from the PPF, however, while there will not be any reductions to the lump sums already accrued, members of the scheme will see a reduction to future pension increases.


A complex decision

The BSPS trustee has advised that for the vast majority of members, the new pension scheme will be better than relying on PPF benefits. However, each member’s financial situation is unique, and there are many factors to consider when assessing the deal. For this reason, it’s important that each BSPS member makes an informed decision after considering their options, and taking appropriate advice.


How Credence International can help

This is where Credence International can assist you. As an independent financial adviser (IFA), we are well-placed to provide detailed, specific advice that is relevant to your personal situation.

We recognise that each client’s needs and circumstances are unique. As such, our consultation process ensures that we gain a thorough understanding of your requirements and objectives for the future before we provide any advice.

If you have questions relating to how the BSPS plan affects you, speak to us today, and allow us to help you make your decision with confidence.