Steel Workers Face Pension Cut Nightmare

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New risks for retirement savers with workplace pensions have emerged as the government and Tata Steel look at cutting pension income and benefits to save jobs.

Workers are between a rock and a hard place – they will either lose their jobs or look forward to receiving less money to fund their retirement.

The government wants to avoid the Tata scheme going into the Pension Protection Fund.

The pension is one of the UK’s largest, with thousands of members, with liabilities of £15 billion and a £700 million black hole.

The company, based in Bombay, India, has told the government the pension is a ball and chain stopping sensible offers from other companies to take over the business.

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Tata Steel scheme to be restructured?

Tata employs 15,000 workers in sites around the UK and the plants have an estimated 40,000 workers reliant on providing goods and services to the steel business.

British Steel Pension Scheme trustee Alan Johnston has welcomed the government move.

He is writing to members explaining their options.

The letter confirms they will have pension benefits cut, but not by as much as if they had entered pension protection.

The government wants to restructure the scheme, mainly by reducing deficits by aligning index-linked benefit payments with the consumer price index (CPI) rather than the costlier retail price index (RPI).

However, this has provoked a disagreement between business and pensions ministers.

Pension blackmail worries

The concern is this will set a precedent that will allow firms to blackmail the government into reducing pension debts.

This puts workers and pensioners in other workplace schemes that have large deficits at risk.

One solutions for retirement savers facing pension cuts is to transfer out to a SiPP or personal pension if they live in the UK or to a Qualifying Recognised Overseas Pension Scheme (QROPS) if they are expats.

However, financial advisers would have to show that the receiving scheme offered no loss of benefits.

If no benefit cuts were likely, then this would probably not be possible, but if they were up to 10% – which is what the Pension Protection Fund offers – this might be achievable.

Ministers in favour of changing workplace pension rules claim that Tata Steel faces closure and huge job losses if a solution is not found.

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