The regulated apportionment arrangement is not necessarily a “good” outcome for members of the British Steel Pension Scheme (BSPS), The Pensions Regulator has noted.

Following its approval for the creation of a new scheme and for an RAA, TPR has published a report on its decision to permit the restructuring of the BSPS by Tata Steel UK.

TPR’s regulatory intervention report outlines the key stages of how TPR assessed the application from TSUK for a RAA and also its proposal for a new pension scheme.

The regulator has explained that although it believes that the mitigation package for the RAA is the “most favourable outcome in the circumstances”, it is also aware that an RAA means that members will not receive the correct pension income that they had previously been promised.

As a result TPR said: “We therefore cannot say that the use of an RAA is a ‘good’ outcome for members. However, it is a better outcome than would be achieved through the only other remaining alternative - the insolvency of the employer.”

TPR executive director for frontline regulation Nicola Parish said: “This was a highly complex case affecting thousands of pension savers. Our report highlights how we took a number of decisions to deliver the best available outcome for scheme members in difficult circumstances.

“The use of an RAA has a significant impact on scheme members - it means they will not receive the pensions they have been promised. This is why employers who are considering applying to us for one need to satisfy themselves, along with their scheme’s trustee, that insolvency is the only alternative and such an arrangement will provide a materially better outcome than the scheme would achieve in insolvency. It is also why we always consider whether we could achieve a better outcome through the use of our powers.”

An RAA will only be agreed if “stringent criteria” has been met to “prevent the process from being abused”, TPR has noted.

The arrangement means members of the BSPS will have the option of switching to a new scheme, the New BSPS, or moving with the old BSPS into the Pension Protection Fund. The new scheme is subject to certain qualifying conditions being met.

The new scheme is to have lower future annual increases for pensioners and deferred members than the BSPS, resulting in less risk for Tata Steel UK and an improved funding position.

While it is not TPR’s responsibility to authorise the new pension scheme, it has an “ongoing responsibility” to ensure that the scheme is properly governed and administers, with an acceptable level of risk to members, it confirmed in its report.

As a result TPR’s report outlines areas of the new BSPS including its governance arrangements, qualifying criteria, advice received by the trustee and scheme sponsor TSUK and its additional risk modelling exercises.

Nonetheless, TPR added: "Establishment of a new pension scheme is not a foregone conclusion. Qualifying criteria still need to be met and a decision is due to be announced in March. The report shows that having completed its analysis, TPR concluded that, if qualifying criteria are met, funding risks under the new scheme’s benefit structure are manageable."

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