When I joined British Steel in January 1996, its pension scheme was the envy of other pension providers. So much so that when the Prudential came to visit my wife to talk about the teacher’s pension, the man asked me what pension scheme I was in, probably hoping to make two deals in one fell swoop. When I replied “British Steel”, no more questions were asked – at the time the British Steel Pension Scheme was simply unassailable, with a healthy surplus and no worries for the future.
Come 2015 and the company, now under Tata ownership, had a hole of 2 billion, which Tata was loath to fill for more than half that amount. That’s why they were contemplating to stop the defined benefits scheme, so that at least in a defined contribution scheme they would have some idea of their liabilities.
So how did a period of less than 20 years make such a difference ? A graph shown during the presentation in 2015 was an eye opener: British Steel had a growing surplus in its pension scheme until 1999, after which the surplus started to shrink, and went into the red around 2007-2008.
The reasons ? First of all, Gordon Brown scrapped the dividend tax credit on pension schemes, following which many pension schemes stopped new entries to their final salary schemes, or stopped them altogether. The British Steel Pension Scheme did not, and the delayed pain may have increased the pain later on.
Secondly, with the formation of Corus through the merger of British Steel and Koninklijke Hoogovens, one of the first steps, apart from closing a few plants here and there, was for Corus to take a pension contribution holiday.
And finally, the markets post-2000 did no longer perform as robustly on the investment front as they did in the 1980s and 1990s. Something that was only exacerbated following the downturn of 2008. So there you have it: Tata Steel is trying to divest itself of a loss-making UK industry, but at the same time, a loss-making pension scheme makes this prospect unattractive to potential buyers.
Still, the pension scheme makes noises that they can offer better terms and conditions than the Pension Protection Fund, and appears to have replied so a week or so ago. For me the question is: will I be penalised for retiring at 60, even though under the then rules of the pension scheme age 60 does not count as an early retirement. Only time will tell …