The British Steel Pension Scheme could seek to use a regulated apportionment agreement (RAA) if the government shelves controversial plans to change pensions law to help the scheme.
The Financial Times reported yesterday a proposal to change pensions law to allow a special solution for the £13.3bn scheme is no longer being considered, citing sources close to the matter.
This comes after the public consultation on ways to save BSPS closed on 23 June, with the government yet to publish its response on the way forward.
The revelation will be welcomed the pensions industry which was very worried about introducing legislation to allow the scheme to lower annual increases and run outside the Pension Protection Fund (PPF) - with many concerned this could set a dangerous precedent for other sponsoring employers to take advantage and reduce their own liabilities.
The PPF had warned in its response to the consultation the government proposal would involve "significant risks for relatively limited gains" and raised "significant questions of equity" between the treatment of BSPS and the PPF's members and levy payers.
However, the scheme's trustee still stands by its support for this plan, issuing a statement on Monday reiterating its belief that dis-applying Section 67 specifically for BSPS would allow it to pay modified benefits indefinitely on a low-risk basis outside the PPF.
The Department for Work and Pensions has not yet responded to PP's request for comment. However, it told the FT it was still considering proposals for the scheme and would respond in due course.
However, commenting on yesterday's reports, Punter Southall senior consultant Martin Hunter speculated an RAA could now be on the cards.
He said: "We expect that if the government formally confirms that it will not make the changes to legislation requested by the trustee of the BSPS, the trustee and the employer will probably seek to use a RAA instead. This would involve establishing a new scheme, with the lower pension increases proposed by the trustee, with each member being given the option of either transferring to the new scheme or entering the PPF following a consultation process."
While RAAs are very rare, they have been used in high profile cases involving large schemes such as Halcrow and Kodak. It would also need the agreement of the Pensions Regulator (TPR) and PPF to decide if it is in the best interest of members.
Hunter added: "It appears that the government's fear of setting a precedent, perhaps combined with concerns about the viability of getting the necessary bill through Parliament, means that the trustee will now have to go down this more well established route and abandon their attempt to experiment with new legislation."
A spokesperson for TPR said: "We continue to engage with the trustees, employer and government on the issues facing the British Steel Pension Scheme. We will only comment in more detail if and when it is appropriate to do so."
Interestingly, the trustee said in its response to the consultation an RAA would be viable but would be more difficult and take longer than its proposed plan given the large number of members in the scheme.
It also said there was a risk some of the 130,000 total members would not respond to a consultation and therefore would fall into the PPF.
However, Hunter pointed out this risk has probably been reduced given how much media attention British Steel has received in recent months.
"If the trustees try to go down that route hopefully it shouldn't be too difficult to engage members in the process," he said.
The scheme has a £700m deficit on technical provisions, based on a roll forward of the funding position from the 31 March 2014 actuarial valuation.
