There has been a lot of comment and adverse publicity in the press about the treatment of British Steel pensioners and their pension options, so I thought I would contribute to the debate.
It seems that Tata Steel (owners of British Steel) came to an agreement with the Pension Protection Fund (PPF) to help reduce the liabilities on their pension scheme. The PPF is a lifeboat pension arrangement that was designed to take over the benefits of final salary pension schemes when their sponsoring employer went bust. This however, is a curious arrangement in that Tata have brokered a deal whereby the members of the British Steel Pension scheme have two options going forward and one is for their benefits to go into the PPF or they are transferred into a new British Steel scheme with less benefits than the old one. The PPF is funded by a levy on all final salary schemes in the UK and I’m not sure that it was designed for this type of arrangement.
If members do not make a decision then they are automatically transferred to the PPF. The PPF will pay benefits accrued in British Steel up to 90% of their pension entitlement with a cap of £34,655. There will be increases in payment and spouses and dependents pensions payable but no lump sum death benefit, either before or after retirement. (more information at www.pensionprotectionfund.org.uk)
The other option, that some people have taken, and which has attracted widespread hysteria, is to opt to transfer their accrued benefits to a personal pension or SIPP. In those instances the member is offered a transfer value in exchange for the guaranteed pension, guaranteed increases and guaranteed spouses pension benefits. So, why would they do it?
There are many reasons, such as they are single or divorced, and on death the benefits are lost. They may need access to the tax free cash to pay off a mortgage or other debt or they may have a serious illness that means they would prefer loved ones to receive part of the benefits as a lump sum rather than it stay in British Steel pensions or the PPF. But the main fact that people forget is that the calculation of a transfer value is based on many factors, but the most important one is interest rates. With rates being so low transfer values have rocketed up and members see them double in a couple of years. This has been the main driver behind people wanting to review their final salary schemes.
Detailed analysis needs to be undertaken by a qualified Pension Transfer Specialist before any recommendation is made and there is a huge amount of legislation around this topic so that members receive the advice that suits their particular needs.
This has now become a political football which will run and run as politicians and regulators run around making wild accusations regarding the validity of a transfer, but done in the right way they can be a fantastic solution to many individual circumstances.
MPA are proud of their history of advising on this topic as firstly we have a number of highly qualified experts in the field and a robust system to make sure clients get the right advice first time.
Phil J McGovern FPFS
Chartered Financial Planner, Pension Transfer Specialist