Proposals to rule changes for the British Steel Pension Scheme could strike the oldest and most vulnerable pensioners the hardest, a former pensions minister warned today.
Steve Webb, who is now director of policy at Royal London, said his firm's calculations suggested that an 80-year-old currently receiving an income from the scheme could be as much as £10,000 out of pocket under some of the rule changes being considered.
The potential changes could allow pension trustees to use the Consumer Prices Index for inflation protection, rather than the generally higher Retail Prices Index. However, the changes also mean that there will be no requirement to index payments in respect of work carried out before 1997, which could result in some of the oldest pensioners having their payouts virtually frozen.
"The rules around pension uprating are complex, and the government’s consultation document is far from clear about how this change will disproportionately affect older and more vulnerable pensioners," said Webb. "This is not simply a case of switching from one inflation measure to another.
"Many thousands of older steel workers and their widows could see their pensions largely frozen for the rest of their life if these plans go ahead, with losses running into thousands of pounds."
Royal London is now urging both government and the British Steel Pension Scheme to make sure those who could be affected are aware of what is happening, so they have the chance to express their opinion as part of government's current consultation.
This potentially huge impact, buried in the small print of the government’s consultation document, highlights the way in which rushed legislation can all too often have unintended consequences. The government and the pension scheme need to make sure that older workers know what is happening and feed in to the consultation process.
A Department for Work and Pensions spokesperson said: "We are consulting on a wide range of options for the British Steel Pension Scheme and are keen for as many people as possible to provide their views, including those who will be affected by any changes."
Read more: What pensions have to do with steel
The consultation on the British Steel Pension Scheme was opened last month to examine a range of options that could be taken to amend the scheme, and will run until 23 June.
It is hoped that the changes, which are designed to shave some of the £15bn liabilities currently within the scheme, could ultimately help secure a buyer for Tata Steel.
Webb has previously told City A.M. that making amendments to the rules for steel pensions could be setting a dangerous precedent.