The report published by the Pensions Regulator in relation to the British Steel Pension Scheme contains some valuable insights into the issues considered by the Pensions Regulator during discussions over the last two years.
Martin Hunter, Principal of Punter Southall Transaction Services, Xafinity Punter Southall: While much of the information was already in the public domain, one new aspect was the detail of the security which the Trustee had over the shares of Tata Steel Netherland BV. The Trustee negotiated this security back in 2007, and this significantly strengthened the Trustee’s negotiating position in the Regulated Apportionment Arrangement (RAA) discussions. It seems that it was almost entirely as a result of this security that the Trustee was able to obtain the cash mitigation from Tata Steel of £550m.
This outcome resonates with our own analysis of the value which can be provided by contingent assets. In our 2017 research report, Risk of Ruin (www.riskofruin.co.uk), one of our key conclusions was that contingent assets are a very effective way of reducing the risk that pension schemes will not be able to provide full benefits to their members. As long as they are robust and properly constructed, contingent assets provide value to a pension scheme when they need it most, i.e. when they can no longer rely on the support of their employer. They can also represent an attractive alternative to cash contributions for employers.
The Pensions Regulator’s report also included some detail of the scenarios in which the New British Steel Pension Scheme would be able to award discretionary pension increases to the members who have chosen to transfer across to this new scheme, rather than enter the PPF or take a transfer value. Any such increases are most likely to be awarded to older members of the New British Steel Pension Scheme in the first instance, on the basis that they have lost out most from the benefit cuts which have been made.
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