Over the last year or so, Pensions News (PN) has had reason to comment on the Indian owned company, Tata Steel UK (formerly British Steel) (TSUK). TSUK has been in the news less for its ability to produce steel and more for its inability to deal with its financial difficulties. The story of its crisis, restructuring and its reincarnation as part of a bigger enterprise could and perhaps should form the basis of the plot of the next James Bond film; but only if the next James Bond is played by a pensions lawyer.
The script for the next James Bond film is sitting in front of PN. The film, called the Spectre of the DB Scheme, is about some bad people who do bad things to defined benefit (DB) pensions and their members. They are only stopped from doing these things by a pensions lawyer who has retrained as a spy. PN does not feel that he is betraying too many confidences when he states that, for reasons of national security, he will have to decline the part of James Bond. PN would rather not step on the toes of Mr Daniel Craig and anyway; the scale and frequency of the action sequences in the new film (at one point in the film, Bond has to run quickly up several flights of stairs) mean that the part would be better played by someone other than PN.
Back to the story which may form the basis of the next Bond plot; a large part of the financial difficulty that afflicted TSUK was the large deficit in its even larger (assets valued at £15bn) occupational DB pension scheme; the British Steel Pension Scheme (BSPS).
Over time, PN and other members of HM Secret Service noted TSUK’s owners’ claim that the large deficit in the BSPS could not be paid for by that company. That company, it was argued (and then demonstrated), simply did not make enough money to cover the cost of providing the benefits the BSPS rules promised. This particular problem was not and is not confined to TSUK. In fact, it was the possibility of a conspiracy theory that may have caught the attention of the HM Secret Service. Conspiracy theory or not, a number of UK sponsoring employers of occupational DB pension schemes have been trying to manage pension deficits for many years. In the case of TSUK, it was apparent that restructuring the pension scheme was necessary in order to prevent TSUK from becoming insolvent. As indicated above, TSUK showed that it was unable to maintain the BSPS and the fact made the company unattractive to investors and/ or potential purchasers. One potential (non-British) purchaser made it clear generally and to TSUK particularly, that it was not interested in incorporating that company into its own operations if TSUK continued to sponsor the BSPS in its current form. In the film, Bond nods knowingly at this news before jumping into his car (a red Mini Cooper with a white roof) and speeding off in pursuit of another bad person.
The “solution” to the BSPS-related problem was a complex one involving (over the summer of 2017) TSUK entering into a formal agreement (vis. a regulated apportionment arrangement (RAA)) the effect of which was to remove the BSPS from TSUK. Under the RAA (which was approved in August 2017 by the Pensions Regulator (TPR) but has only recently been finalised), the BSPS was to receive £550m from the Tata Steel Group. The restructuring was, according to analysts (some of whom may have been commissioned by PN’s bank-leading uncle Mark to work with the secret service), more than the scheme would have received in an insolvency situation (i.e. on TSUK’s insolvency) but considerably less than the full value of the scheme deficit. In return, the BSPS received a 33% equity stake in the restructured TSUK. In the meantime, Tata was able to merge its European steel operations with the potential purchaser referred to above; ThyssenKrupp.
BSPS members were given the option (a) to transfer their rights to benefit to another (slightly less generous) pension scheme sponsored by TSUK, (b) to leave their rights in the (old) BSPS and then have them moved into the Pension Protection Fund (PPF) or (c) to transfer the value of their benefits to a personal pension plan.
In approving the RAA, the Chief Executive of TPR stated, with Bond no doubt looking on in the background, that TPR did “not agree to these types of arrangements lightly …. after several months of robust negotiations ….. the [deal arrived at represented the] best possible outcome for everyone involved in what is a very difficult situation”.
TPR’s views were not universally held. Chairman of the Work and Pensions Committee and, in the film, M’s nemesis, Mr Frank Field MP, raised concerns over the retirement benefits that British steelworkers would receive in retirement and the security of their benefits. These concerns were probably small when measured next to the concerns at the number of BSPS members who, on advice, took option (c) above and decided to transfer the value of their benefits to AN Other pension plan. The concern was that many of the BSPS members became potential targets for “rogue advisers and fraudsters” – clearly the sort of bad person James Bond would target. The FCA became involved directly when its director of strategy and competition, Mr Christopher Woolard, stated that the FCA had reminded advisers of the regulator’s expectation of them. Towards the end of 2017, BBC Radio 4’s programme, “Moneybox”, named advisers who, its presenter indicated, were suspected of providing sub-standard, not to say fraudulent advice. Police in South Wales have, since then, been investigating allegations that BSPS members have been victims of pension fraud. The claims include allegations that some members were deceived and misled by financial advisers into investing their pension savings into unsuitable, high-charging funds. This news, in the new film, is the trigger for Bond to be launched into the most dramatic of his action sequences (see above).
BSPS members had until 22 December (2017) to decide which of the options summarised above they wished to take. Members who did not respond (there were many such members – see below) were automatically left where they were which, as stated previously, meant that they were moved into the PPF. All transfers were completed by the end of January.
Although the outcome to date represents a better outcome than a TSUK insolvency would, the entire episode has been punctuated with allegations of wrongdoing, mismanagement and, in the Bond film, an international conspiracy of eye-watering proportions. The sort of problem that would take more than a RAA and a letter from Mr Field to resolve. Firstly, it is evident that a number of BSPS members may have been victims of pension scams.
Secondly, there have also been complaints made against the trustees of the BSPS. Some members have been in touch with the Pensions Ombudsman’s office (PO) after having been through the BSPS’s own internal dispute resolution procedure. The PO has reported that it is currently investigating a group of over 150 complaints (against the BSPS trustees) about transfer values involving members of the BSPS. The PO also confirmed that another investigation concerning cases where BSPS members have complained about the early retirement factors is to be undertaken soon.
Thirdly, regulatory authorities have not emerged unscathed. Commenting on the FCA’s involvement in the regulation of the advice provided to some BSPS members, Mr Field MP, contacted FCA executive director of supervision (Ms Megan Butler) to state that he felt its actions had been “grossly inadequate”.
Where we are now is that, of over 122,000 TSUK current and former employees, about 83,000 chose to join the new BSPS. Over 25,000 members did not (for whatever reason) respond and have now moved, along with the remnants of the “old” BSPS to the PPF. Some of the remainder have been left with nothing having transferred their benefits to the inappropriate, high-charging arrangements referred to above.
Perhaps (but perhaps not) unrelated to the last point is an announcement, made by the Government on 12 February, that it is publishing its response to the Work and Pensions Select Committee’s report “Protecting pensions against scams: priorities for the Financial Guidance and Claims Bill”. The Government has stated that it agrees with the committee’s view about the need to stop pension scamming activity at source and that individuals would benefit from pensions guidance to help them understand the options available to them. These statements and the fact that no timetable has been issued for reform do not fool PN and they should not fool you, the reader. Reading between the lines, it is evident that, behind the scenes, clandestine forces are being mobilised (or should be) to ensure that the bad people perpetrating the pension scams referred to are eviscerated. In the film, evisceration will be literal but in reality, the relevant authorities will take appropriate action. This line, when spoken quietly by Ralph Fiennes in his role as M, sounds far more sinister [<<cue Bond theme music>>].
Until next time……..