Tata pension - change from RPI to CPI and maybe more

veryintrigued

This is not going to end well....

http://www.bbc.co.uk/news/business-36384508

kidmugsy

How typical of the Beeb; considerable verbiage, but they give us no clue as to the legal position. Is RPI-linking set in stone in the pension scheme rules, or is there just a non-specific reference to inflation-linking? Is the government intending to break the law, pass a new law, or what?

A new law that allows retroactive changes to pension scheme rules would seem to be so lousy an idea that it would be a sign, I suggest, that many more DB schemes than Tata's are heading for the mire, or else that the government has lost its head, and is being hysterical. I'd prefer to hope that it's all just a cynical attempt to put everything off until after the referendum.

atush

Yet if they dont make the company sale able, then it could go bankrupt and the pension would then be in the PPF, reduced by 10% and less or even no uprating at all.

So maybe the employees in the pension could vote to change the terms? To keep it running?

antrobus

kidmugsy wrote: »

How typical of the Beeb; considerable verbiage, but they give us no clue as to the legal position. Is RPI-linking set in stone in the pension scheme rules, or is there just a non-specific reference to inflation-linking? Is the government intending to break the law, pass a new law, or what? ....

Yes, but 'nobody understands pensions', especially journalists.:)

This link below explains the CPI vs RPI issue.
http://www.pensionsadvisoryservice.org.uk/content/spotlights-files/uploads/RPI_to_CPI_SPOT011_V1.2.pdf

What the British Steel pension scheme says is that "pensions are generally increased each year on 1 April by reference to the annual increase in the RPI over the 12 months to the preceding January"

https://www.bspensions.com/standard-section-s5/pensioners-s30/pension-increases-s52.html

Which kinda implies it isn't 'set in stone'.

kidmugsy

atush wrote: »

Yet if they dont make the company sale able, then it could go bankrupt and the pension would then be in the PPF, reduced by 10% and less or even no uprating at all.

So maybe the employees in the pension could vote to change the terms? To keep it running?

What will the effect be on every other pension saver in the country if it turns out that a government is prepared to change the law with retroactive effect just because of political hysteria over one, not very important, company? It would set a dreadful precedent. The only defence, I suppose, would be if, as you say, the scheme members got a vote on the issue. But it's not a completely persuasive defence I think: why should employee A get to vote on employee B's pension? Why should people who are past scheme retirement age be dictated to by those who are not? Or vice versa?

Suppose I had a vote on my own principal DB pension scheme reducing benefits as an alternative to joining the PPF. I might well vote to stay out of PPF, if only because joining the PPF is irreversible. By contrast my scheme's financial plight might be reversed if ever interest rates pick up again. I have no idea whether that is true of the Tata scheme.

Ho hum: iron-making in this country is doomed for entirely obvious economic reasons. The back end of the steelworks might have some value, but I can't imagine that the front end, the blast furnace (or furnaces?), has any value at all. No fannying about with the pension scheme will alter that reality. It seems to me to be a dangerous game to alter pension law for every DB scheme just to deal with one not very important local difficulty.

I suppose if the law change were just that the members have a right to vote to reduce benefits, or benefit growth, then that's a good deal less bad than the government forcing the change on the scheme; but then what mischief might happen in the future as different blocks of members seek to disadvantage each other in various other DB schemes? It's a can of worms. Let's hope it's just referendum-related slithering.

kidmugsy

antrobus wrote: »

What the British Steel pension scheme says is that "pensions are generally increased each year on 1 April by reference to the annual increase in the RPI over the 12 months to the preceding January"

Which kinda implies it isn't 'set in stone'.

Good. But in that case what the devil has it got to to do with HMG? If the scheme is facing perdition, the trustees should just announce that they are not bound by their own precedents, that "generally increase" is a description, not a promise. In future, they could say, they expect to pay the legal minimum increase instead.

The intrusion of HMG makes me wonder whether the schemes own rules are a bit more restrictive than that summary on the website.

Andy_L

antrobus wrote: »

Yes, but 'nobody understands pensions', especially journalists.:)

This link below explains the CPI vs RPI issue.
http://www.pensionsadvisoryservice.org.uk/content/spotlights-files/uploads/RPI_to_CPI_SPOT011_V1.2.pdf

What the British Steel pension scheme says is that "pensions are generally increased each year on 1 April by reference to the annual increase in the RPI over the 12 months to the preceding January"

https://www.bspensions.com/standard-section-s5/pensioners-s30/pension-increases-s52.html

Which kinda implies it isn't 'set in stone'.

Digging into the members handbook (admittedly not the scheme rules) it says RPI but capped at 4%

jamesd

The issue with this scheme is that there is a substantial risk of it ending up in the PPF. If that happens the inflation increase will be CPI, not RPI, because CPI is what PPF uses. And in addition the potential for a drop in pension income, particularly serious for higher earners.

With that background a law that permits a change from RPI to CPI to prevent a scheme going into the PPF and suffering the initial drops could well be a useful but of protective legislation, since that outcome beats PPF. The thresholds used to decide when this is permitted will be crucial to protect the members of schemes that wouldn't go into the PPF anyway.

kidmugsy

jamesd wrote: »

The issue with this scheme is that there is a substantial risk of it ending up in the PPF. If that happens the inflation increase will be CPI

In my case, it wouldn't be CPI. It would be CPI capped at 2.5% on much less than half my pension, and nil on the bulk of it. I can well see why people want to avoid the PPF. But is this a sensible way to go about it?

veryintrigued

Any vote on changes would be interesting given the split of massive amount of active pensioners, deferred members (hugely increased since Tata sold its interest in Long Products in April) and ever decreasing amount of paying in members.

Each group with its own interests.

Shedman

Can't say I'd have a lot of sympathy for anyone that resisted this proposed change. My former company's scheme changed to CPI from RPI and cap reduced from 5% to 2.5% and this was and is a profitable FTSE100 company not a massively loss making white elephant. Much as we would have liked existing terms to have stayed as they were, the alternatives were worse. That's life at the moment unfortunately