The British Steel Pension Scheme (BSPS) must not be granted special treatment to ensure the stability of the scheme, as this could undermine the integrity of the UK’s regulatory system for pensions, the Pensions and Lifetime Savings Association (PLSA) has warned.
Responding to a UK government consultation on ways to reduce the deficit of BSPS, the association warned against “bespoke” and “piecemeal” regulatory changes.
Joanne Segars, the PLSA’s chief executive, said the government’s pushing ahead with changes for BSPS, “without also considering amendments for all schemes”, would be “inconceivable”.
She added: “While securing the best outcome for members of the British Steel pension scheme is of paramount importance in this instance, it must be balanced against securing the best outcome for all defined benefit pension scheme members.”
She warned that the legal changes could have unintended consequences for the integrity of the UK regulatory system.
And while she acknowledged that the situation facing BSPS due to Tata Steel’s intention to sell or close its UK business, she argued that the ability to sever ties with a sponsor should not become the default approach.
“We urge the government to commit to a long-term review of the current legislative system affecting defined benefit schemes to ensure their sustainability, and [we] call upon the government to work with our Defined Benefit Taskforce and the wider pensions industry to achieve this,” she said.
The PLSA launched the taskforce, chaired by Ashok Gupta, in March. In early June the taskforce launched a consultation - a call for evidence - on challenges facing defined benefit (DB) pension provision in the UK.
Gupta, a former non-executive director at the Pensions Regulator, is a principal at Towers Perrin and a member of the Financial Reporting Council’s codes and standards committee.
Concerns have been raised across the industry over the proposal for BSPS to continue as a standalone entity without Tata Steel, or the entity potentially buying its UK business, as a sponsor.
Clive Fortes, a partner at consultancy Hymans Robertson, was among those questioning the approach.
“The effect of this proposal is that the BSPS members will continue to receive benefits in excess of those that would be payable under the PPF, with all other scheme sponsors underwriting the non-trivial risk that the BSPS will need to be rescued by the PPF at some stage in future,” he said.
Fortes also noted that the scenario outlined would see the benefits of BSPS outperformance enjoyed only by its members, yet a failure of its investment strategy would directly impact all those paying the PPF levy.
The PPF raised this concern as well, suggesting BSPS should be barred from entering the lifeboat fund if the link to its sponsor were broken.