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.


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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