25 May 2016

Tata Steel: secret plan to rewrite pension law

A Government row has erupted over a secret plan to re-write pension law after Indian conglomerate, Tata, demanded members’ benefits be cut.

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The disagreement has emerged as Business Secretary Sajid Javid met Tata bosses in Mumbai. Steelworkers had hoped there would be an announcement about a shortlist of buyers but the parent company just said it would now take some more time to evaluate bids.

Sources suggest this move could preempt a decision by Tata to keep its investment in the UK and abandon the sales process, which the Government has been pressing for.

It is understood that the Department for Work and Pensions “is not comfortable” with the possible proposal being spearheaded by Mr Javid that would change pension rules to persuade Tata to hold its investment.

It is understood that the Prime Minister has signed off on what could amount to a far-reaching change in pensions law despite the objections from DWP and reservations of Treasury. The split could be hugely damaging for Mr Javid, who is running out of time to rescue Tata Steel, which employs 15,000 people in Britain.

Number 10 said they recognised the fact that the pension was a challenge and they were exploring all options, but would not comment specifically on ongoing policy discussions or speculation about a row.

People involved in the discussions say the law could become a Pandora’s box with “dangerous implications” for all UK pension schemes and employees. Insiders complain “Tata is holding a gun to Government’s head” and trying to “circumvent the proper mechanisms”.

“It would be wholly irresponsible to tear up the law just to please one foreign owner,” said one senior Government source.

If the law is changed for Tata then other companies could agitate for similar reductions in members’ benefits, which would affect most of the UK working population. Companies like BHS and Sir Philip Green would be tempted to ask why this reduction in pension liabilities couldn’t be applied to them.

If the Government decided to go ahead with the plan, a consultation period would need to be launched seeking to cut the scheme’s long-term liabilities by benchmarking it to the consumer price index (CPI) rather than the retail price index (RPI), which is higher.  This was already done for state pensions in 2010.

The exact details of the scheme are not clear but this could shave billions of pounds from ongoing costs and mean a haircut of around 10 per cent to members.

Tata would also want the Government to guarantee the scheme, which would represent a major shift in the current stance. While the Government has done this for Royal Mail in the past it was thought unlikely it could justify using taxpayers’ money to guarantee the Tata Steel pension scheme, which is valued at £14bn.

“Do we have a pension protection scheme or not?” said the source, referring to the Pension Protection Fund, which is a levy system that rescues schemes in trouble. Under the PPF the haircut to Tata’s scheme would be more acute.

Roy Rickhuss, general secretary of union Community, said that it would be an “unmitigated disaster for BSPS (British Steel Pension Scheme) to go into PPF”. Mr Rickhuss said that they were not “taking anything off the table” even when it came to the possibility of changing the law to adjust benefits. “It is important that any change in the law to save steelworkers’ pensions would not have an adverse impact on other pension schemes.”

Tata has said it has had seven expressions of interest from bidders and is hoping today to announce two or three “preferred bidders” will be taken into a second round.

“Sajid promised Tata something – and this is something,” said the inside source.

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10 reader comments

  1. ron armes says:

    39 years working in the steel industry paying into my pension every month and losing my job at the Redcar Plant but luckily being able to get my pension but now to be told I might have to take a hit on it to save the Steel Industry is hard to swallow, Who took the hit to save our Jobs ? Nobody, Government couldn’t care less about the North East of England FULL STOP !

  2. Olga Thomas says:

    Why do MPs, Chief Police Officers, Chief Executives of Local Authorities, Directors, and many, many more, take good pensions when they retire BUT when it comes to the ordinary working man working in industry, they have others to write and re-write their pensions ? It’s about time everyone stood up and was counted: Save our Steel and save the livelihoods of the workers who produce it.

  3. Neil says:

    Take it back into public ownership, private company can not be allowed to change the law, it is too important allowing company to threatened the state

  4. Adil Hasan says:

    I do not understand much, but to me it would have been better to put the steelworks in the hands of the workers in the form of a cooperative so they at least have some control of their destiny.

  5. Irvin Carl Jackson says:

    A law for one and a law for others isn’t on

  6. MoreSilentMajority says:

    so, the workers would rather have no jobs, no pension, no nothing as tata is folded up into nothing instead of a negotiated package that might cost them a bit but retain most of their jobs. of course the union would prefer to maintain their high paid featherbedding structure where costs are higher than income forever. jeremy would fling the public’s money at it in hopes of maintaining the worler’s ‘rights’ to be paid more than their jobs earn.

  7. James Stevenson says:

    I’m surprised that you, and other news organisations, say that replacing RPI with CPI in calculating pension increases would set a dangerous precedent.
    In June 2010 the government announced precisely such a change for local government worker’s pensions, effective from April 2011, without as I recall any consultation or legislation. I and 10s of thousands of ex L.G. employees have thus
    been deprived of part of the pension we were promised when we were still working.
    Just to rub salt in the wound I noticed this morning that the local government pension scheme ( LGPS ) website still has a heading which reads:
    “Your LGPS Retirement Benefits
    You can look forward to enjoying a guaranteed package of benefits when you
    retire”
    I have told them that the use of the word “guaranteed” in this context is at best misleading and at worst a bare faced lie. At the time this happened I had been
    drawing my pension for just 3 months but I don’t remember the media or indeed
    my former union protesting on our behalf.

  8. MICHAEL KNOTH says:

    THIS COULD BE THE THIN END OF A DANGEROUS WEDGE TO GET FORMER EMPLOYEES TO BAIL OUT COMPANIES WHILE LOSING WHAT THEY HAVE ALREADY CONTRIBUTED TO

  9. gary phillips says:

    Its absolutely disgusting the way the torys are systematically eroding this country’s hard fought rights and taking more and more people into hardship. Remember a Labour government quite rightly saved the majority of banks going under and making it hell for the population, but this tory government will not help those most in need.

  10. Jim Maxwell says:

    I agree with most of the above comments and feel that we are being screwed yet again by an untrustworthy government.
    If they consider the steel industry so important why have they let it get to this state and be dictated to by an Indian company.
    It should be returned to public ownership, the problems now may be in part due to a deteriorating set of circumstances but are largely due to government negligence in having any interest in British industry in general.
    Considering how we all subsidise civil service pensions MPs pensions bank bailouts and hand vast amounts out often to corrupt. Governments in foreign aid I believe the government should cover the shortfall.
    Why should steelworkers with pensions be made to pay for overall incompetence at the highest level. stay out of the PPF and do not appease any moves to reduce. Payouts. After all this is what those in government do to us.

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