When the new scheme was set up in 2018, following a regulated apportionment agreement approved by the pension regulator, the trustee agreed with Tata Steel UK – the scheme’s sponsor – that if the financial situation of BSPS II in March 2021 was better than expected, an additional one-time lump sum payment may be made to certain retired members.
According to an information letter to members, the latest actuarial valuation of the scheme “showed that the conditions for making this one-time payment were met, and £58 million is to be shared”.
The latest actuarial valuation of the scheme, as of March 31, 2021, showed a surplus of 105% over technical provisions, slightly lower than the 106.3% recorded in March 2018.
The agreement setting up the new scheme provided for a possible additional payment for this category of members if the 2021 valuation resulted in an “unforeseen surplus”. I am happy to say that this condition has been met
The agreement for a single payment was reached due to the fact that, unlike the old scheme, the BSPS II does not provide for inflationary increases on any pension acquired before April 1997 beyond any guaranteed minimum pension element .
The payment is therefore intended to provide some compensation to members for this difference for the period between 2018 and 2021.
Keith Greenfield, Chairman of the BSPS II Administrator, said in the bulletin: ‘If any part of your scheme pension now in pay was earned through service before April 1997, you will have a particular interest in the outcome of the 2021 assessment.
“The agreement setting up the new scheme provided for a possible additional payment for this category of members if the 2021 valuation resulted in an ‘unexpected surplus’. I am happy to say that this condition has been met.
With 57,500 retired members, the increase will be paid out to approximately 50,000 members, who are eligible if they were in receipt of a pension both as of March 31, 2021 – at the time of the scheme’s valuation – and March 31, 2022, and whether the individual earned part or all of this pension before April 1997.
According to the bulletin, eligible members will receive a letter from the trustee around June, which will include the amount that should be paid. For the majority of individuals this will be paid as a lump sum and the minimum payment should be at least £250 before income tax.
The trustees plan to make the payments in October 2022, which will give the scheme’s pensions office and the trustee’s advisers time to prepare the calculations required for the roughly 50,000 lump sum payments, he added.
Plan being redeemed
Despite a slight decline in the scheme’s surplus over technical provisions, due to factors such as “the impact of the global pandemic on investment markets and the government’s announcement on how inflation in the ‘retail price index will be calculated from 2030’, BSPS II saw its buyout funding improve in the latest assessment.
The pension fund is now 94.5% funded on a buy-in basis, down from 90.1% in the previous valuation, “mainly because investment performance against estimated insurance pricing has been better than expected,” the bulletin said.
Greenfield explained that over time, as the program matures, the BSPS II “funding level should improve further and eventually reach 103% on a buyout basis.”
“If and when this happens, benefits should be guaranteed with one or more insurance companies, and the 3% excess will be used to increase members’ benefits in accordance with the provisions agreed upon when the new BSPS was created. “, did he declare. .
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According to a report by the National Audit Office, there is still a risk that large numbers of savers will seek to exit a defined benefit pension scheme.
“Achieving the level of funding to trigger this additional payment to members and secure their benefits remains the Trustee’s top priority.”
With this in mind, at the end of 2021, the scheme agreed on a buyout with Legal & General covering around 5% of the liabilities.
“This does not affect the benefit rights or benefit security of any member. The buy-back policy is seen as a long-term investment,” Greenfield added.