This briefing was written by Chris Brown who is a Senior Associate in our Pensions team.
Background
The collapse of Tata Steel Ltd was well publicised throughout 2016 and 2017 in both the pensions and mainstream press.
The Company applied to tPR for a regulated apportionment arrangement (an 'RAA'). This is a type of pensions restructuring deal that rescues an insolvent company whilst (usually) ensuring members receive compensation from the PPF. However, in the high-profile case of the British Steel Pension Scheme (the 'BSPS') the Government was keen to explore options to allow members to receive above PPF level benefits.
The RAA deal reached was that Tata Steel UK Ltd would set up a new scheme ('BSPS2'). In broad terms, this would offer members benefits that were higher than the level of compensation they would receive if the BSPS were simply to enter the PPF. However, the benefits under BSPS2 would be lower than the full benefits members were entitled to receive in the BSPS (assuming, of course, that there were an employer able to fund the BSPS to full benefits - which there wasn't).
Members were given a choice whether to:
- transfer to the BSPS2; or
- remain in the BSPS (and receive PPF level compensation).
Another option for some members was to transfer their benefits out of the BSPS to an independent pension arrangement.
If members did not make an active choice, they would remain in the BSPS (and receive PPF level compensation). The structure of the deal meant that (perhaps counter-intuitively) this was the best option for some members, although it was expected most members would be better off transferring to the BSPS2 rather than remaining in the BSPS or taking a transfer value elsewhere.
Independent Review
tPR commissioned an independent review by Caroline Rookes CBE of the communications and support provided to members during the restructuring exercise - particularly of the information provided when members had to choose between the BSPS and the BSPS2 (or taking a transfer).
The BSPS faced a unique and challenging set of circumstances - unlikely to be faced again by any scheme. But it was hoped lessons can be learned to better support members of other schemes facing similar situations in the future.
A significant concern was around those who had transferred their benefits out of the BSPS - some of whom had expressed regret at their decision. The general concerns were that their benefits would now be dependent on investment returns in DC schemes, or that they had fallen prey to unscrupulous advisers who charged high fees to arrange transfers to inappropriate pension schemes.
Rookes Review Recommendations
Caroline Rookes CBE makes some key recommendations:
- Legislative change – a quirk of the 'above PPF' RAA restructuring is that members have to actively choose to opt-in to the replacement scheme. One option could be to explore a change in the law so that members can be defaulted to the replacement scheme if that is thought to be in their interests and they do not actively make a choice.
- Timing – the member communications had short deadlines for responses. One option to give members more time to engage could be a tPR power to stop or delay the member consultation exercise.
- Co-operation between public bodies – Rookes suggested that tPR, the FCA and tPAS (now becoming part of the Single Finance Guidance Body) could meet regularly to share intelligence and make clear their different objectives - including to other parties.
- More tPR guidance for Trustees – an 'above PPF' RAA is an unusual situation for all involved. Trustees are probably seeing it for the first time. Example approaches and actions from tPR might help Trustees address their own cases.
- Digital Technology – in the modern world Trustees might consider the easiest way for members to engage and interact with pension information. Whilst some members may not have access to online or social media communications, the vast majority now do and modern ways of communication should be considered to maximise member engagement. In the BSPS case, a lack of information (because key players were understandably focussed on agreeing the underlying deal) meant that members had the void filled with misinformation. Trustees in all situations might consider that member communications can be useful even if they do not have much of an update to give.
- More guidance for members on transfers – the Scorpion campaign on pension scams has been universally well received and achieved good results. However, there are other risks to pension transfers and specific guidance could be helpful.
FCA, TPR and TPAS Joint Protocol
In response to the Rookes Review, the FCA, tPR and tPAS have issued a joint protocol to enable their early intervention in helping trustees ensure members are adequately and fully informed when thinking of transferring-out their DB benefits.
The protocol sets out a procedure for a regular exchange of information and intelligence.
It also sets out template letters to pension scheme trustees and members in both general and specific (e.g. in restructuring circumstances) cases involving potential transfers-out.
Burges Salmon Comment
We welcome the continued and improved communication between public bodies dealing with complex transactions such as the BSPS restructuring. Building on the lessons learned from the BSPS’ experience will improve the experience for members of other schemes.
Many of the recommendations about communicating with members are good reminders about how to pass on information in business-as-usual situations as well. As schemes become more mature and member flexibility and options increase, trustees will want to consider the best way of communicating options and risks (whilst ensuring they do not stray into giving financial advice).
If you would like to discuss the Rookes Review or member communications more generally, please get in touch with Chris Brown or your usual Pensions team contact.