Former pit workers will receive enhanced pensions benefits following a rule change confirmed last week.
The government has agreed that 112,000 members of a mineworkers pension scheme can have £1.5 billion that had been held in an ‘investment reserve’ fund.
This fund was originally set up using profits from the pension scheme in 1992 to provide a financial cushion in case the scheme went into deficit.
When British Coal was privatised in 1994, the government agreed with the then trustees that it would underwrite the mineworkers’ scheme in return for half of the then actuarial surplus, and half of any future surpluses. This money was due to be returned to the government in 2029.
However, the investment fund’s surpluses grew a lot more than expected, reaching £1.5 billion. As a result, the government has never needed to pay any funds into it.
Now, all the money will be transferred to the scheme’s trustees. This will boost their pensions by 32 percent a year, meaning each scheme member will see an average increase of £29 a week.
DB run-on warning
The move is a warning for companies today looking to run-on DB schemes to benefit from future fund surpluses, according to Ian Mills, head of defined benefits endgame strategy at Barnett Waddingham.
“The government’s announcement will undoubtedly be welcomed by retired miners, who have been campaigning hard for this for many years.
“It does, however, give valuable lessons to companies that may be considering running on their DB schemes to grow a surplus.
“The first lesson is that companies should not assume that just because scheme trustees are happy a deal is fair and reasonable that members will be too. The second lesson is that it would be wise to consider how the perception of fairness may change as conditions change, either positively or negatively,” Mills said.
Energy secretary Ed Miliband said: “For decades, it has been a scandal that the government has taken money that could have been passed to the miners and their families. Today, that scandal ends, and the money is rightfully transferred to the miners.”
