The government is considering changing the indexing of the British Steel Pension Scheme (BSPS) to make Tata Steel more attractive to potential buyers, according to reports.
According to the Financial Times, Business Secretary Sajid Javid is in discussions with unions and trustees to propose indexing the scheme's accrual rate to the consumer price index (CPI) instead of the retail price index (RPI). The government estimates this would reduce the liabilities by around £2.5bn.
The scheme had £14.5bn in liabilities and £14bn in assets during its latest funding update on 31 March 2015.
The FT said the government's plans include Tata Steel paying several hundred million pounds into the scheme so it is ring fenced. This would lead to the steel giant no longer being responsible for BSPS.
There is no clarity yet on whether the government or a new buyer will stand behind the scheme as a sponsor.
Talks over the proposal have been a closely guarded secret so far with the parties unwilling to divulge details.
The government is keen to avoid BSPS falling into the Pension Protection Fund which is also grappling with the collapse of British Home Stores (BHS).
While BHS has two schemes with around 20,000 members and a deficit on a buyout basis of roughly £571m, the BSPS has 130,000 members.
According to Tata Steel, the latest annual funding update as of 31 March 2015 showed a deficit on an on-going basis of £485m, although experts have estimated it could have increased since.
Commenting on the reports of the government considering switching the indexing of BSPS to CPI, Barnett Waddingham partner Simon Taylor said: "The government changed the legal minimum pension increase from RPI to CPI in 2011, but many employers could not take advantage of this due simply to the drafting of their scheme's rules.
"If companies could be given the chance to change RPI to CPI regardless of their scheme's rules, this could help make their pension schemes more sustainable and provide more security for scheme members who would still receive inflationary increases of some kind.
"The RPI calculation methodology is old-fashioned - so much so that it is no longer designated an 'Official Statistic' by the Office for National Statistics. It seems perverse that some companies and trustees cannot move to the more modern and widely accepted CPI simply because their rules were drafted many years ago and do not give them the flexibility."
He pointed out public sector schemes were able to move to CPI increases on accrued pensions, while the "rules lottery for private sector schemes is unfair."
"All companies should be given the option to control costs in the same way that the public sector has."
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