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Members of the £7.3bn New British Steel Pension Scheme will see an increase to their pension worth an estimated £3,300 on average, as the fully bought in scheme is distributing a circa £200m buyout funding surplus to more than 60,000 members. The trustees are expecting further surplus to build up, which would also be paid to members.
This marks the second of three possible so-called ‘restoration payments’ to the members of the scheme since it was set up in 2018. It is part of an agreement between the trustees and the company to pay surplus to members when the scheme reaches 103% buyout funding.
“As we reached 103% of the cost of insuring all members’ benefit entitlements, the trustee can distribute the 3% surplus... to eligible members,” trustee chair Keith Greenfield told members.
Unlike the first award worth £58m, which was paid to about 48,000 pensioners with pre-1997 accrual as a lump sum, this second payment will be received by most of the 66,650 members as part of their pension.
The size of individual payments will depend on the value of future benefits under the scheme as compared to those they would have accrued under the Old British Steel Pension Scheme's rules, to help compensate for what members gave up when they switched.
The more pension was built up before 1997, and the younger the member, the bigger the extra payout will be, the scheme said. This is because pre-97 benefits were reduced more on moving to the new scheme, while younger members are considered to have given up a greater share of future increases. The youngest member in the scheme is 26.
Further payout could be made in early 2026
As all benefits are fully insured, the members could receive further payouts in future.
“Although not originally specified in the rules, the trustee has always taken the view that any surplus funds in addition to the amounts already mentioned should be used for the benefit of scheme members,” said Greenfield.
He noted that while the scheme holds liquid assets to meet running costs, it “also has certain illiquid assets which it is hoped will generate further funds in due course”.
How much surplus these assets will generate will only be known for sure in 2025 “or thereabouts”, he added, when an ongoing data cleansing exercise – prompted by the requirement to equalise guaranteed minimum pensions – has been completed.
“I am pleased however to report that the trustee expectation is there will be funds available to make a further restoration payment, probably in the early part of 2026," he said.
The idea that defined benefit schemes could invest for surplus is currently being debated in the pensions sector. The government consulted last November on whether rules around surplus should be changed so that employers and trustees are incentivised to re-risk investments and generate a surplus, hoping this could enable greater investment in UK assets, including productive finance. A further consultation on the detail of making surplus extraction easier will be launched this year.
There is a separate condition on which the trustees can make extra payments to members, agreed with the sponsoring company, which relates to income from the trustee’s shareholding in Tata Steel UK. However, Greenfield told members that “the trustee considers it highly unlikely that there will be any meaningful proceeds from this source”.
In May last year, Tata Steel said the future of its UK business was uncertain. Last month, the Indian multinational announced that it will cut several thousand jobs in the UK as it is restructuring and replacing blast furnaces with greener electric arc furnaces.
In pensions, British Steel is synonymous with an advice scandal dating back to 2016-17, when the scheme was changed. Nearly 8,000 scheme members chose to transfer out amid uncertainty about the restructuring, nearly half did so based on flawed advice, the Financial Conduct Authority later found.
Those who did not transfer out were given the option to join a new BSPS pension scheme or stay, with the Old BSPS entering Pension Protection Fund assessment, which it later exited to secure benefits in PPF+ deals.
