The retirement plans of tens of thousands of steel workers have been thrown into disarray as their pensions have been pushed into the Pension Protection Fund, the government lifeboat for failed schemes.
The 122,000 members of the British Steel Pension Scheme (BSPS) have until Friday to decide whether to stay with the scheme, join a new one with reduced benefits set up by Tata Steel, or transfer to a personal plan.
Tata was forced to offload the £15bn BSPS, to pave the way for a 50-50 merger of its European operations with Germany’s ThyssenKrupp to create the second biggest steel producer in Europe after ArcelorMittal.
It is thought more than 20,000 members had still not indicated a decision to leave by the deadline. As a result, they will default into the PPF – a move that is likely to see their retirement savings dramatically slashed.
The PPF steps in to save schemes when they face collapse, meaning savers do not lose everything. Stephen Kinnock, Labour MP for Aberavon where Tata’s Port Talbot steelworks is situated, said: “It’s deeply worrying that we have a huge number that have not responded.
“Why was the PPF the default? Why on earth wasn’t BSPS 2 the default? I have written to [work and pensions secretary] David Gauke a few weeks ago about this and he still hasn’t responded. It is still possible for the government to step in and sort this out.”
Allan Johnston, chairman of the BSPS trustees, said the situation was a concern, because for around 99% of pensioners the new scheme, set up by Tata, still represents the best option.
Alan Rubenstein, chief executive of the PPF, disagreed, saying “most, but not all, BSPS pensioners would be financially no worse off or marginally better off in the new scheme”.
The BSPS said the deadline could not be extended because it would cost the pension scheme an additional £200m if the transfers were not completed by the end of January.
Scheme trustees, union leaders and the Financial Conduct Authority, the country’s main financial regulator, have all faced criticism for not providing sufficient advice and protection to members.
BSPS trustees have held 40 events at 11 locations over the last five weeks in an attempt to reach out to members with advice on what to do with their pension pots, many worth as much as £300,000.
The 4,500-strong British Steel Pension Members Group made a plea to staff in retirement and care homes in North Lincolnshire, close to British Steel’s former Scunthorpe works, to see if any residents were aware of the deadline.
The pension transfer process descended into chaos as unscrupulous financial advisers, charging large fees, flooded into the steel heartlands of south Wales and the north of England in a bid to persuade workers to transfer their retirement pots.
Frank Field, chairman of the work and pensions committee, said the practice had become a “feeding frenzy” and a “honey pot for scammers”. “Transferring out of a gold-plated final salary pension is generally a terrible idea, except in very particular circumstances.”
The regulator is investigating 17 such firms. But MPs said the efforts to protect steelworkers was inadequate, and that the FCA should have acted sooner. “The FCA has been asleep at the wheel,” Kinnock said.
The aim of the joint venture with ThyssenKrupp is to create a leading European provider of flat steel and position it as a leader in quality and technology. The new company will have annual sales of roughly €15bn and employ around 48,000 people.
A source close to Tata said: “The pension is not an issue. It is a done deal. But ThyssenKrupp has got its own problems in Germany with the unions.”
Workers at ThyssenKrupp initially opposed the deal, fuelled by concern that more steel jobs would be lost on top of the 2,000 already announced. IG Metall, the powerful German union, demanded 10-year guarantees for jobs, plants and investments.
However, a deal was struck on Friday between the union and management, removing the final obstacle to the planned merger.