Tata pension - change from RPI to CPI and maybe more

Andy_L

uk1 wrote: »

But it is the pension scheme that is the obstacle to saving the company from a new owner taking it. You do understand that don't you?


Jeff

Is it? Or is the Company a dead man walking and this is an attempt by Tata to minimise their losses by flogging it off to an asset stripper for a better price than if the pension deficit went with the sale?

jamesd

PensionTech wrote: »

I do indeed. I also understand that there are other measures that can be taken, which wouldn't require rewriting primary legislation, to separate the pension scheme from the company.

Which of those has a reasonable prospect of success within the required timeframe?

Andy_L wrote: »

Is it? Or is the Company a dead man walking and this is an attempt by Tata to minimise their losses by flogging it off to an asset stripper for a better price than if the pension deficit went with the sale?

It's apparent that there are no purchasers who would take the business with the pension liabilities attached. No surprise there, a smaller ongoing business with the attached pension liabilities of the once far larger British Steel* is not an attractive proposition. It's also apparent, or should be, that Tata didn't have responsibility for the level of accrued benefit of the British Steel pension scheme that was around long before Tata entered the picture. And also I hope clear that Tata did not introduce quantitative easing and cause pension fund return projections to be lower.

Tata may be at fault for not doing things like closing the scheme and replacing it with a DB one for the future as soon as they took ownership, and refusing to buy if they couldn't.

*The coal pension schemes had a similar but far worse position, with huge numbers of former miners and negligible ongoing mining industry to pay any deficits. It's a generic problem for industries declining severely in size.

uk1

Andy_L wrote: »

Is it? Or is the Company a dead man walking and this is an attempt by Tata to minimise their losses by flogging it off to an asset stripper for a better price than if the pension deficit went with the sale?

To a large extent any company taking on Tata in it's current condition is going to strip out the worst of loss making elements it finds, and attempt to capitilise on whatever is strong that remains. That, I guess is asset stripping.

Personally I think it is a dead man walking, and oddly if the timing were better, and we could advance the clock to after a Brexit the government may have had a pallette of other options some of which may be less unpalateable than the ones currently on offer. I do not understand for the life of me how anyone can do anything that will make the company produce steel so cheap it can compete with current subsidised imports.

So whoever takes it on and attempts almost anything isn't going to be as bad as doing absolutely nothing but how much more I do not know.

Jeff

Andy_L

jamesd wrote: »

It's apparent that there are no purchasers who would take the business with the pension liabilities attached. No surprise there, a smaller ongoing business with the attached pension liabilities of the once far larger British Steel* is not an attractive proposition.

but is the lake of buyers purely due to the ~£500m pension deficit and buyers will be chomping at the bit if that's dealt with, or is it because nobody thinks the investment is worth the return because there's no money to be made in making steel in the UK and the company is losing £1m/day

uk1

Andy_L wrote: »

but is the lake of buyers purely due to the ~£500m pension deficit and buyers will be chomping at the bit if that's dealt with, or is it because nobody thinks the investment is worth the return because there's no money to be made in making steel in the UK and the company is losing £1m/day

This has all been quite complicated and it seems handled badly by the government. They reacted slowly; you'll recall they didn't have anyone attend meetings in India when the future of the plants were being discussed, and the minister was in Oz with his daughter when it all started t blow up. There were some early expressions of interest, but there are a lot of factors apart from the pensions that are in the pot such as the lower cost of powering plants in places such as Germany.

The minister has said consistently (I paraphrase) is that the starting point for creating an environment in which Tata would receive genuine interest is adjusting the pension liabilities issue. Whether that is enough, who knows. It doesn't really sound likely to me. No one I think is suggesting that a buyer is waiting in the wings if the pension issue is sorted,

Jeff

veryintrigued

Andy_L wrote: »

but is the lake of buyers purely due to the ~£500m pension deficit and buyers will be chomping at the bit if that's dealt with, or is it because nobody thinks the investment is worth the return because there's no money to be made in making steel in the UK and the company is losing £1m/day

You're aware that huge parts of Tata Steel (the Long products business) have already been sold in April of this year?

Greybull and Liberty House.

jamesd

Andy_L wrote: »

but is the lake of buyers purely due to the ~£500m pension deficit and buyers will be chomping at the bit if that's dealt with, or is it because nobody thinks the investment is worth the return because there's no money to be made in making steel in the UK and the company is losing £1m/day

The value isn't fixed so it presents a serious risk to any potential buyer while it's there. Big pension scheme so a bit of an increase in say life expectancies could greatly increase the costs of the ongoing business to support the no longer working for them members of the scheme. Such risk is one reason why most private sector defined benefit pensions have closed to new and usually existing members.

It's going to be tough to compete even without issues like that hanging over the business.

One potential positive is that if conditions improve for a sustained time it's not impossible to restore the benefit levels. Higher returns for the pension scheme investments, say, perhaps as a result of more favourable to DB pension scheme central bank policies.

Andy_L

veryintrigued wrote: »

You're aware that huge parts of Tata Steel (the Long products business) have already been sold in April of this year?

Greybull and Liberty House.

For a whole £1 wasn't it.

uk1

PensionTech wrote: »

You seem to be assuming that the PPF plans to always be funded by DB schemes. It does not; it plans to be self-sufficient within the next 14 years, and it appears to be on track for that.

The PPF is there for schemes going bust. Tata is going bust. I think your panic is premature, to say the least, and I don't think there's a compelling argument to let some fairly vague and unfounded concerns about the future of the PPF set a precedent for demolishing fundamental rights to property simply because the Business Secretary is having a knee-jerk reaction to pressure for failing to regulate or support the steel industry.

My "premature, vague and unfounded concerns" seem to be shared by Frank Field chairman of the Works and Pensions committee today. He obviously read the comments I made here yesterday. Shame he didn't post. "The whole savings edifice is in danger.”

There are schemes with joint deficits of £805bn .... and only £4bn of schemes surpluses. Makes the eyes water a bit ....

Jeff

MP's fear more work pensions under threat.

The work and pensions committee is to assess whether there are other pensions schemes in as much trouble as those of BHS and Tata Steel.


Frank Field, chairman of the work and pensions committee, has announced “a major inquiry” to follow on from the inquiries into BHS because “the whole savings edifice is in danger”.


He said that the committee would respond to the government regarding British Steel, whose pension scheme is sponsored by Tata, but added: “We will be going much, much further to consider defined benefit pension schemes in their entirety.”


MPs are already investigating events surrounding the collapse of BHS and have been questioning advisers to its former owners, Sir Philip Green and Dominic Chappell.


The Department for Work and Pensions is considering introducing special legislation to allow the British Steel pension scheme to cut benefits to its 130,000 members without their consent. The proposal could set a precedent, as experts said that it could cost millions of pension savers up to £200 billion in lost retirement incomes.

Mr Field said: “The state of the British Steel pension scheme is evidence of a wider danger to one of the biggest savings successes in Britain in the last century: occupational pension schemes. The committee’s in-depth case study on BHS is illustrating how such schemes are creaking from rising life expectancy and record low returns on capital.

“Pension law and regulation must urgently adapt to the issues of the future, rather than the problems of the past. The whole savings edifice is in danger.”
He said that the government was right to consider radical proposals on British Steel pensions but added: “We should be under no illusions that British Steel is a special case.” He said that 11 million people had private defined-benefit pensions and more than 5,000 of the schemes were in a total deficit of about £805 billion while the surpluses of others was £4 billion.

http://www.thetimes.co.uk/article/mps-fear-more-work-pensions-are-under-threat-j36drht32?shareToken=ebf6730fbd2355894b3eed63354d0a9e

Takedap

PensionTech wrote: »

The PPF is there for schemes going bust. Tata is going bust.

The BSPS (not TATA) has potential shortfall of £700m IF the assumptions used to make the calculations are correct.

We won't know that until the last pensioner dies. It will be 30+ years before some of the deferred members are eligible to claim. A lot can change in that time.

The scheme has potential liabilities of £14B but assets of 13.3B so is 95% funded.

Should irreversible knee-jerk decisions be made that could wreck the whole of the remaining DB system to save one industry?

Especially to find a buyer who might just walk away in a couple of years time anyway.