FAQs

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Buy-out: how it works

A buy-out is happening because the cost of paying all members’ and dependants’ benefits at Pension Protection Fund (PPF) levels, now and in the future, is less than originally anticipated. The reasons for this include that, when the Scheme started being assessed for the PPF, more members had died, and fewer members were married, than expected.

This improved funding position means that the Scheme will be able to secure a buy-out with an insurance company instead of the PPF assuming responsibility for the Scheme. The insurance company is Pension Insurance Corporation plc (PIC). We are legally obliged to try and secure a buy-out, because the PPF is intended as a safety net only for schemes that have no other options because of their poor funding positions.

Being able to secure a buy-out is good news, as most members will get more pension income from PIC than they would from the PPF. See FAQ 1 on Buy-out: impact on my pension for more information about this and when we’ll be able to tell you what your benefits will be after the buy-out.

In the unlikely event that a buy-out doesn’t happen, the Scheme would still be protected by the PPF and would eventually transfer into it. The PPF would then pay members’ pensions at PPF levels.

Significant progress has been made towards a buy-out by the purchase of a new insurance policy (known as a ‘buy-in’) we have arranged for the Scheme. On 8 October 2020 we bought this insurance policy from PIC, which means PIC is now responsible for providing us with the money we need to pay benefits to our members. This is a big step towards the Scheme exiting its PPF assessment period and completing a buy-out. When the buy-out happens, PIC will take over paying benefits directly to members and the Scheme will then cease to exist. See FAQ 1 for more information about the buy-out.

The purpose of PIC is to pay the pensions of current and future policyholders. PIC is a specialist insurance company and a leader in the provision of annuities, in bulk, to the members of defined benefit pension schemes. They pride themselves on the quality of their customer service and are acknowledged as a leading company in the UK in this regard. PIC has insured the benefits of more than 250,000 pension scheme members and has a portfolio of approximately £50 billion to back future pension payments. Their past clients include Cadbury, Rentokil, M&S, the Co-Op, BHS, Kingfisher and WPP.

You can read more about PIC at pensioncorporation.com and they will be sending you more information shortly.

Securing a buy-out is a complex process and the timetable might change. However, we expect that the buy-out will be complete by the end of 2021. The new ‘buy-in’ insurance policy we arranged for the Scheme with PIC on 8 October 2020 is a big step towards the Scheme exiting its PPF assessment period and completing a buy-out. We will give you more information once it becomes available.

Both the PPF and PIC offer a high degree of security. The PPF is in a strong financial position and has been protecting members since 2005. It is already responsible for more than 250,000 members in over 1,000 transferred schemes. Insurers such as PIC are amongst the world’s largest and most secure financial organisations. In a buy-out, you have a contract with them in which they guarantee to pay your benefits. See FAQ 3 for more about PIC.

As part of our work to explore the possibility of a buy-out, we have taken specialist advice and concluded that PIC has sufficient financial strength to support the buy-out. Like all insurers, PIC is regulated by both the Financial Conduct Authority and the Prudential Regulation Authority (PRA). The PRA requires insurers to hold significant capital reserves in order to back the buy-outs and other insurance products they provide.

Insurance companies, including PIC, are also covered by the Financial Services Compensation Scheme (FSCS), which can provide compensation of members’ pension amounts in full. The FSCS would pay this compensation directly to the individual policyholders.

In the same way as a pension paid by the PPF, pension income from an insurance company isn’t affected by changes in investment markets. As part of a buy-out, PIC will commit to provide all future pensions and benefits payable to members.

Under the buy-out, PIC will take over the responsibility for paying your benefits directly to you for life, along with any relevant death benefits such as a pension for your spouse.

See FAQ 5 and FAQ 6 for more information on the regulation and security of insurance companies, including PIC.

Buy-out: impact on my pension

You won't be affected immediately. However, when we complete the buy-out towards the end of 2021, all members whose PPF benefits are less than their full Scheme benefits (i.e. the amount they would be if the Scheme were not in a PPF assessment period) will see an increase to their benefits. All other members will see no change as a result of the buy-out. Towards the end of 2021, we’ll be able to tell you exactly what your benefits will be.

As soon as we are in a position to do so, we will write to all members to confirm the increase to their benefits. We expect to be able to do this towards the end of 2021. However, earlier in the year, we hope to give you an idea of the increase members can expect on average.

Members will see an increase to the benefits they are currently receiving if the value of their PPF benefits is less than the value of their full Scheme benefits. ‘Full Scheme benefits’ means the benefits they would have if the Scheme were not in a PPF assessment period. All other members will see no change as a result of the buy-out.

Please also see FAQ 1 and 2 in the 'Data and benefit checking' section, as some members' benefits might also be affected by the data and benefit checking that we are carrying out.

We don’t know the amount yet. However, we expect the increase to members’ benefits to be significant where a substantial reduction or cutback was applied to them on the Scheme entering its PPF assessment period.

However, earlier in 2021, we hope to give you an idea of the increase members can expect on average. Towards the end of 2021, we’ll be able to tell you exactly what your benefits will be.

Members will see an increase to the benefits they are currently receiving if the value of their PPF benefits is less than the value of their full Scheme benefits. ‘Full Scheme benefits’ means the benefits they would have if the Scheme were not in a PPF assessment period. All other members will see no change as a result of the buy-out.

Please also see FAQ 1 and 2 in the 'Data and benefit checking' section, as some members' benefits might also be affected by the data and benefit checking that we are carrying out.

If you are already receiving a pension from the Scheme, a buy-out will mean you get the same or better than you currently get. See FAQs 1, 2 and 3 for more information about this and when we’ll be able to tell you what your benefits will be after the buy-out.

If your pension from the Scheme has been reduced or cut back, a buy-out will mean you will receive more than you currently get. See FAQs 1, 2 and 3 for more information about this and when we’ll be able to tell you what your benefits will be after the buy-out.

Following the buy-out, the full pension income you are entitled to at your normal retirement age will be the same or better than it would be if calculated at current PPF levels. See FAQs 1, 2 and 3 for more information about this and when we’ll be able to tell you what your benefits will be after the buy-out.

However, you have some retirement options which would change the benefits you get. These include when to start taking your pension and whether to swap some of your pension income for cash. For example, if you decide to retire before or after your normal pension date, your pension is either reduced or increased to reflect either early or late payment.

From 1 January 2021 we are changing the terms for what these options give. The new terms will no longer be based on what the PPF applies and will instead reflect the Scheme's buy-out investment strategy. If you retire before 1 January 2021, you will get the current Scheme terms. On average, the current Scheme terms are likely to be slightly more generous than the terms that will apply from 1 January 2021. We expect this difference to be offset by the increase to benefits referred to in FAQs 2 and 3. However, this cannot be guaranteed for all cases, as the terms will continue to change over time and vary from member to member. Benefit increases will also vary from member to member.

Please note that if your benefits will increase as a result of the buy-out and you want to take that into account when you retire, you will need to wait until after the buy-out happens which is expected towards the end of 2021. In particular if you have already retired at the point of the buy-out you may not be able to exchange some of the increase to your benefits for a higher lump sum, in which case any increase would be provided as additional pension.

After the buy-out happens and the Scheme moves to PIC, the terms for what these options provide will be set by PIC over time. They will be different to the current Scheme terms (and to what the PPF applies now and in the future). This means that it is not possible to say whether, in future, PIC's terms will be comparatively more or less generous than the PPF's.

Choosing when and how to take your benefits is an individual decision that depends on your particular circumstances. We’re not allowed to give you financial advice. For that, you should to talk to an independent financial adviser. You can find an adviser near you at directory.moneyadviceservice.org.uk

You can ask for a retirement quotation from your Scheme administrators, Barnett Waddingham.

See FAQ 6 for an explanation of the retirement terms that will be changing from 1 January 2021.

Choosing when and how to take your benefits is an individual decision that depends on your particular circumstances. We’re not allowed to give you financial advice. For that, you should to talk to an independent financial adviser. You can find an adviser near you at directory.moneyadviceservice.org.uk

If you are not yet taking your pension, you have some options which would change the benefits you get. These include when to start taking your pension and whether to swap some of your pension income for cash. For example, if you retire before your normal pension date, your pension is reduced to reflect early payment. If you retire after your normal pension date, your pension is increased.

If you retire before 1 January 2021, the way these options are calculated will be based on the current Scheme terms. For retirements on and after 1 January 2021, these terms will change. The new terms will no longer be based on what the PPF applies and will instead reflect the Scheme's buy-out investment strategy.

The PPF factors that the Scheme is currently using and which would apply to you if you retire before 1 January 2021, are available here and here.

On average, the current Scheme terms are likely to be slightly more generous than the terms that will apply from 1 January 2021. We expect this difference to be offset by the increase to benefits referred to in FAQs 2 and 3. However, this cannot be guaranteed for all cases, as the terms will continue to change over time and vary from member to member. Benefit increases will also vary from member to member.

Towards the end of 2021, when the buy-out has happened and the Scheme has moved to PIC, the terms for what these options provide will be set by PIC over time. PIC’s factors will vary from time to time and they will be different to the current Scheme terms. They will also be different to what the PPF applies now and in the future.

This means that it is not possible to say whether, in future, PIC's terms will be comparatively more or less generous than the PPF's.

See FAQ 6 for more information about retiring early or late or swapping pension income for cash.

The Scheme Rules and overriding law usually allow you to convert benefits into a one-off cash payment in certain circumstances. Your age and total pension savings (in the Scheme and elsewhere) are relevant factors for this purpose, and you must not have started to receive your pension.

However, we've had to suspend this option for now due to the buy-out process with PIC.

Transferring out involves converting the benefits for a member who is not yet taking their benefits, into a monetary value, which is then transferred to a different pension arrangement. At the moment, transferring out of this Scheme is not permitted either by the Scheme Rules or by the law. However, after the buy-out, the law requires that members have access to a transfer-out option, which PIC will provide. We will give you more information about this option once it becomes available.

No. This is not permitted either by the Scheme Rules or by the law.

No, the law does not permit you to stay in the PPF.

As the Scheme is able to provide benefits in excess of PPF levels of compensation, it is required by law to wind-up outside of the PPF and secure members' benefits with an insurance company. This is because the PPF is intended as a safety net only for schemes that have no other options because of their poor funding positions. There is no discretion for us to do anything else.

However, it might be possible for you to transfer-out to another registered pension arrangement if you would prefer, after the buy-out has occurred towards the end of 2021. See FAQ 10 for more information about this.

Lifetime Allowance

If you retired before 6 April 2006, the Lifetime Allowance doesn’t affect you. But if you retire after that date, the Lifetime Allowance limits the total value of all your pension benefits that you can build up. If you go beyond that limit, you have to pay an extra tax charge. For the 2020/2021 tax year, the Lifetime Allowance is £1,073,100 as a lump sum. That’s equivalent to an annual pension income of £53,655.

Most people don't need to apply for Lifetime Allowance protection. Generally speaking, the Lifetime Allowance has reduced over time, and this protection allows you to keep the benefit of an older, higher version of the Lifetime Allowance. Most people don’t need to apply for this protection because their pension savings are not close to the Lifetime Allowance, so they won’t have it.

You can check whether or not you have protection on the HMRC website . Log in and click ‘Check your existing protection’. If you do have protection, you’ll see confirmation of it while you’re logged in to the HMRC website. Where this applies, please download a copy of the page that tells you the type of protection you have, so you can send it to our administrators.

If you have enhanced or fixed Lifetime Allowance protection – or if you intend to apply for it – and we don’t know about it, an increase to your benefits could result in an extra tax charge. So it’s important that you tell our administrators.

Data and benefit checking

As mentioned in our letter dated 21 October 2020, we are checking the data we hold and the way in which benefits have been calculated, as well as checking our records against those held by HMRC (the tax office).

These exercises are separate from our plans to complete the buy-out and would be done even if the Scheme were moving into the PPF. Further details about these exercises were set out in our August 2019 newsletter.

If we need to change any of the data that we hold about a member as a result of the checks we are carrying out, it is possible that their benefits might also need to be changed.

For example, we might find that someone has been getting, or expecting to get, a higher or lower pension than they should have. If that were the case, we would have to correct the position.

If this applies to you, we’ll tell you more about it when we can.

One-off cash payment option

The deadline for taking up the one-off cash payment option passed on 23 April 2021. If you have any questions not included here, please get in touch.

We currently expect to pay the one-off cash payments in May 2021.

Yes. If you are a pensioner, all of the one-off cash payment will be taxable. If your pension has not yet come into payment, you will get a quarter tax-free and the rest will be taxable. Your payment confirmation letter will confirm the amount of tax that has been deducted from your one-off cash payment.

No, if you opt to take the one-off cash payment, it will be paid in May 2021.

No, if you opt to take the one-off cash payment, it must be paid in full and it will be paid in May 2021.

No, we can only make the one-off cash payment into a bank account in your own name.

Payments will be made during May 2021. We'll write to you shortly before payment is due to be made to confirm the details.

Unfortunately we cannot accept any new requests. This means you will stay in the Scheme.

We outlined in earlier correspondence that we are working towards securing a buy-out with PIC. When the buy-out happens, PIC will take over responsibility for paying benefits directly to members.

Further information

Find out more about buy-outs at The Pensions Advisory Service

Find out more about the Pension Protection Fund

Get in touch

Need to update your personal details or have any questions about your benefits? Contact your Scheme administrators, Barnett Waddingham:

Call:

0333 566 0156

Email:

BSPSmembers@barnett-waddingham.co.uk

Write to us:

Old British Steel Pension Scheme
Barnett Waddingham LLP
3 Devon Way
Longbridge Technology Park
Birmingham
B31 2TS

New British Steel Pension Scheme member?

If you moved over to the new British Steel Pension Scheme in March 2018 you can find all the information about your scheme here: www.bspspensions.com