Steel deal may pave way for all f irms to slash pensions
A RADICAL plan to save Britain’s steel industry could ‘rip a hole’ in the pension protections enjoyed by millions of workers, experts warned last night.
Business Secretary Sajid Javid yesterday confirmed he may change the law to allow the downgrade of future payments from the giant British Steel pension fund to sweeten the sale of Tata UK’s troubled plants.
The £485million black hole in the firm’s pension fund is seen as a major stumbling block to the sale of the operations, which include the Port Talbot steelworks in South Wales.
But there are fears that taking away benefits that have already been granted to workers would set a dangerous precedent that could be imitated by firms in other industries.
Under the proposed deal, the inflation rate used to index-link future payments could be downgraded from the Retail Prices Index (RPI) to the lower Consumer Prices Index (CPI), resulting in lower pensions for the workers involved.
This will mean that over time, savers will see their pension increase at a much slower rate – reducing their income by 15 per cent.
Pension experts warned that the plan was a slippery slope that could encourage a wave of similar moves by businesses look- ing to shed their pension scheme responsibilities.
Tom McPhail, head of retirement policy at wealth manager Hargreaves Lansdown, said: ‘The potential deal on British Steel could rip a hole in one of the most fundamental principles of pension provision. It is well established that pension benefits, once granted, can’t be taken away.
‘ The Government should be very cautious about sacrificing such a principle in pursuit of short term interests.’
Labour’s business spokesman Angela Eagle said the deal risked setting ‘a very worrying precedent for other occupational schemes’.
And Steve Webb, former pensions minister and now Director of Policy at Royal London, said: ‘The risk is contagion. It’s a huge Rubicon to cross.’
In a consultation paper yesterday, the Department for Work and Pensions said the British Steel pension scheme needs to be separated from the current owner, Tata Steel UK, because ‘it is highly unlikely that a purchaser would be willing to take on the pension scheme’.
But Mr Javid acknowledged the risk of setting a wider model. In a statement to MPs, he said: ‘No decision has been made. We are wary of setting a precedent.
‘This is very much about this scheme and this scheme only, in very unique circumstances.’
Mr Javid told MPs there were a number of ‘credible bidders’ for Tata’s UK operations, which employs around 11,000 people.
Some of the potential buyers include US entrepreneur Wilbur Ross, Leeds-based private equity firm Endless and India’s JSW Steel.
The publication of yesterday’s consultation comes as the Government desperately tries to engineer a rescue deal for Tata Steel’s UK operations in Port Talbot ahead of next month’s EU referendum.
Indian conglomerate Tata, which also makes Jaguar cars and Tetley tea, put its loss-making British steel operations on the market in March because it was losing around £ 1million a day. Tata blamed cheap Chinese imports and high business costs.
However, none of the interested bidders has managed to agree a deal with Tata and the Government, which has offered to take a 25 per cent stake alongside a potential purchaser.