FAQs

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Buy-out: how it works

A buy-out is happening because the Scheme has enough money to provide benefits at or above the level that the PPF would provide. 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 the insurance company, Pension Insurance Corporation plc (PIC) instead of the PPF assuming responsibility for the Scheme.

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.

As part of the work towards completing a buy-out, we have already put in place a buy-in with PIC. We are now working with our advisers and PIC to convert the buy-in to a buy-out.

On 8 October 2020 we bought an insurance policy (known as a ‘buy-in’) from PIC as part of the process towards a buy-out. This means PIC is now responsible for providing us with the money we need to pay benefits to our members. This was 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.

We originally expected to finalise the buy-out by the end of 2021, unfortunately the process is taking longer than expected. This is because of recent legal rulings affecting pensions in general, not just this Scheme. These legal rulings affect the level of benefits that you must be paid.

The rulings mean that we now have to do more work to finish our calculations. Because of this extra work, we now expect to complete the buy-out with PIC by late summer 2022.

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

When we complete the buy-out by late summer 2022, all members with PPF level benefits which are less than full Scheme benefits will see an increase to their benefits. Towards summer 2022, we expect to be able to tell you exactly what your benefits will be.

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

By late summer 2022, we expect to 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.

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.

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 by late summer 2022.

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.

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 FAQ 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.

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

If your pension from the Scheme has been reduced or cut back, a buy-out will mean you 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.

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

No. The delay in completing the buy-out will not impact the way in which increases to benefits are determined. If you are affected, we'll tell you more about it when the final calculations have been made.

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.

Please note that if your benefits will increase as a result of the buy-out and you want to take that into account within your retirement options, you will need to retire after the buy-out happens which is expected by late summer 2022. In particular if you have already retired at the point of the buy-out you will 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 is completed 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. This means it is not possible to say whether, in future, PIC's terms will be comparatively more or less generous than the current terms.

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 a regulated financial adviser. You can find an adviser near you at MoneyHelper

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

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 a regulated financial adviser. You can find an adviser near you at MoneyHelper

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.

If you want to consider this, please contact our administrators to find out more – contact details can be found here.

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 2021/2022 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.

Exit from PPF assessment

See in the Buy-out: how it works section for more information about when the buy-out will happen.

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. See FAQ 7 for more information about this.

All benefits will remain at PPF levels until the buy-out is completed. We expect this to be in summer 2022.

For most members, PPF benefits are less than the full Scheme benefits. When the buy-out happens, these members will see an increase to their benefits.

These are the other exercises that are happening which might affect you:

  • checking member data and how benefits have been calculated
  • adjusting benefits where necessary so they are at the correct level
  • increasing benefits where required by the recent legal rulings mentioned above.
Some members might see their benefits change as a result of these exercises. If you are affected, we'll tell you more about it when the final calculations have been made, shortly before the buy-out is completed in summer 2022.

See in the Buy-out: impact on my pension section for more information.

See in the Buy-out: impact on my pension section for more information.

We’ll continue to have responsibility for paying benefits (at current PPF levels) until the buy-out is completed. After the buy-out has been completed, PIC will take over paying benefits directly to members.

Instalments of your pension will continue to be paid monthly in advance on or around the first day of each month.

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. Pensions law in relation to transfers means it hasn’t been possible to transfer out of the Scheme since its PPF assessment period which started on 29 March 2018. As the Scheme has now exited PPF assessment, you may be able to transfer your benefits to another pension arrangement if you have not started receiving your pension.

If you want to consider this, please contact our administrators to find out more – contact details can be found here.

If you would like some impartial guidance, or you are thinking of transferring out, you should contact MoneyHelper, on 0800 011 3797 before taking any further action.

After the buy-out, members who are not yet taking their benefits will still have access to a statutory transfer-out option, which PIC will then provide. More information will be provided by PIC in due course.

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

Further information

Find out more about buy-outs at MoneyHelper

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