MPs are probing the surplus sharing between the government and the £11.2bn Mineworkers’ Pension Scheme, with some pensioners and trustees hoping for a review of what they say is an unfair arrangement. Can the government remain non-committal as it deals with pensioners in former ‘red wall’ constituencies? 

 

More than a quarter of a century since British Coal was privatised, an inquiry was launched last month by the Business, Energy and Industrial Strategy Committee, with a second evidence session held on Tuesday. MPs are digging into the details of how the Mineworkers’ Pension Scheme was dealt with by John Major’s government back in 1994 – and whether now is the time to give pensioners a bigger slice than they are receiving under the current 50/50 surplus sharing deal.  

 

Pensioners and the National Union of Mineworkers say the split is unfair – and trustees say the board was never happy with it but had to agree if the scheme was to benefit from any government guarantee at all. To date, the scheme has paid £4.4bn in surplus money to the government, with a further £1.9bn due to be paid by 2029, while the scheme’s 125,000 pensioners have also received bonuses.

 

Annemarie Trevelyan, the minister for business, energy and clean growth, gave no indication on Tuesday as to whether government would seriously consider changing the split of the surplus sharing arrangement at this time, indicating however that “my door is always open” for the trustees to discuss the issue. 

 

She admitted that the choice for the trustees at the time was to either take or leave the 50/50 split and guarantee. This share was offered despite the fact a 70/30 split in favour of pensioners had been suggested by the scheme’s advisers previously. 

 

Trevelyan argued that the guarantee was extremely valuable and allows the trustees to pursue higher-risk investments that have generated the surplus in the first place. 

“There has been a very successful investment policy, I understand, by the trustees, who were free to do that without the limitations of having to carry all the responsibility themselves,” she said. “But they had that knowing [that they had] the backstop and they’ve been successful in their investment strategy as a result, which of course has benefitted the members as well as where government has seen a share of that surplus,” she added.  

 

Last year the scheme held about £4bn in public and £1.5bn in private equity, £1.7bn in special situations and private debt, £1.5bn in property and the remainder in infrastructure, cash and other assets. These allocations are in relative contrast with private sector schemes of similar maturity, which tend to be much more reliant on bonds. 

 

Despite this, the fact pensioners often struggle to get by while government is set to receive a windfall is causing controversy. Alan Brown, an MP for the Scottish National Party, asked Trevelyan if as an MP representing Berwick-upon-Tweed in the northeast, she could “look miners in the eye and say, ‘Yes, the government is taking thousands of pounds that could go into the pocket of miners’”. 

 

The minister remained non-committal, repeating her view that these pensioners received bonuses in the first place thanks to the extra investment risk the guarantee allows trustees to take, saying only that the trustees "are very welcome to always come and talk to us”. 

 

 

The 2020 annual report of the MPS agrees with government’s view that “without the guarantee, the Committee may need to adopt a lower investment risk strategy in an attempt to protect members’ pensions” and that “this would lead to lower investment returns and at the current time would make it highly unlikely that there would be a surplus at any future valuation. As a result, it would not be possible to award new bonuses to members.” 

 

But pensioners argue that the surplus sharing arrangement has put the MPS in a worse position than other privatised industry schemes; among others, they point to the BT Pension Scheme, which enjoys a crown guarantee with no strings attached, although the BTPS has an ongoing employer.

 

In March, trustee and committee of management chair Chris Cheetham said that surplus sharing is not seen in the private sector either, where employers are forbidden from accessing the pension fund assets. Some private sector employers worried about trapped surplus have however set up escrow accounts to ensure any remaining surplus is returned.

 

 

The MPS trustees last year secured an agreement with government to protect pensioner bonuses until 2023. Bonuses make up about a third of an MPS pension, adding on average £19 a week to a guaranteed pension of £65 a week. The median combined pension is even lower at £65, and a quarter of members receive a weekly pension of less than £35, according to Cheetham. 

 

While MPs have been looking mainly at whether the 50/50 surplus sharing needs to be revised, the focus of the trustees seems to be on obtaining agreement for distribution of the investment reserve, given that the scheme population is already elderly and therefore might not benefit much from any uncertain future payout obtained from a 70/30 agreement. Distributing the reserve would provide an immediate increase; Cheetham said the investment reserve fund, if paid to members, could uplift an average pension by £14 a week.  

 

It is unclear how pension increases on low amounts would affect individual members though, who might be receiving pension credit or other benefits. This was already a problem between 2002 and 2005, when the government made some payments directly to those members on the lowest pensions, worth about £2,000 per person. “We received a lot of complaints from people who received that payment,” said NUM general secretary Chris Kitchen, because some members’ state benefits were impacted by the payment. 

 

 

At the evidence session held in March, Kitchen stressed that the government had not paid “a penny” into the pension fund yet has received an eye-watering surplus share. 

“Nobody is saying the guarantee is not beneficial to the members, but it may not be value for money for the members given the amount we’ve had to pay for it already,” he argued. 

 

Pensioner elected trustee Allen Young agreed that while the guarantee has been important, “it’s come at a cost”. The government’s estimate was that it would receive what would in today's terms be about £4bn from the scheme, a figure that will be vastly exceeded. “They've received 50% more than expected. They will have received £6.3bn, when you’ve got pensioners receiving between £60 and £80 a week,” said Young. “That’s totally unfair.” 

 

The feeling of unfairness, already strong, is heightened by the low average pensions. But the MPS debate seems to be about more than just pensions – it is a comment on the economic situation of former coalfield areas and the role that the UK government has played in this. The fact that Westminster is set to benefit to the tune of billions from a scheme for miners, without having had to contribute, is therefore potentially explosive for a government keen to keep constituency seats won in the north and midlands at the last election. 

A reassessment is overdue, suggested Kitchen. “Maybe this is a good time to reset and look at what has happened over the last 25 years and for the government to accept that it has had enough money out of the scheme, and what remains in the scheme should be distributed to the members in the scheme to increase their pensions for what little life they’ve got left,” he said.