Mineworkers’ pensions

On privatisation of British Coal in 1994, an arrangement was made between the Government and the trustees of the Mineworkers Pension Scheme (MPS) on future arrangements for pensions after privatisation. Key elements of this were that:

• The MPS was closed to further contributions.
• A government guarantee meant that scheme members would always receive the benefits they had earned up to privatisation, increased in line with inflation.
• 50% of the surplus in the scheme at privatisation was used to enhance members’ pensions immediately. The other 50% was put in an investment reserve, to be called on should a deficit arise. To the extent that these funds are not needed to maintain benefits, they are to be transferred to the government over time.
• Scheme members and the government would receive equal shares of any distributable surpluses from valuations after 31 March 1994. The members’ 50% may be used to improve benefits. (HC Deb 27 April 1994 c167-9W).

The decision to share the surplus 50:50 was “agreed between the Government, in its role as Guarantor, and the Scheme Trustees,” rather than being based on actuarial advice (PQ128727, 26 February 2018). The National Audit Office said the guarantee would be of significant reassurance to pensioners (HC 360 1995-96).

In the 2000s, the Coalfield Communities Campaign argued for a review of the surplus-sharing arrangements, arguing that the guarantee had been struck on actuarial advice which, with hindsight, may have been too cautious and that a “50% share of an unexpectedly large surplus is too much.” The Labour Government looked again at the arrangements but decided that, against the background of large falls in stock markets, it would not be right to change the arrangements (HC Deb 7 March 2003, cc 1278-9W).

On 23 December 2020, a group of MPs representing coalfield communities wrote to the chair of the Business Energy and Industrial Strategy Select Committee calling for an inquiry into the issue. They drew attention to the fact that the average pension for former miners in the Scheme is £84 pw and that the Government had received over £4 bn from the scheme but made no contribution to it since 1994. They argued that funds remaining in the investment reserve should be used to “provide a direct and almost immediate financial uplift to many retired miners’ pensions, providing greater financial security for them and their families.”

In evidence to the BEIS Committee on 23 March 2021, the MPS trustees said that at privatisation they were essentially, faced with a fait accompli: ‘Take it or leave it. If you want the guarantee, it is 50:50.’(Q3). Payments to the Government had already exceeded the £4bn projected at privatisation by Binder Hamlyn: it had received £4.4 billion and was due to receive a further £1.9bn over the next few years – a total of £6.3 billion (Q7). The trustees said that if the money in the investment reserve was available for distribution to members, it would enable an increase of £14 pw in the average pension (Q28 and 36).

In evidence on 13 April 2021, Minister of State for Business, Energy and Clean Growth, Anne Marie Trevelyan, said she understood that the trustees would still make the same choice today regarding the surplus share in order to have the guarantee. It ensured “no detriment,” inflation-linked annual increases (Q44) and provided “backstop support” to a successful investment policy (Q47). Asked about the proposal to distribute the investment reserve to members, she said this was “the backstop proposition that ensures that the cash is there, should there be a need, in order to support members” (Q55).

In its report published on 29 April 2021, the BEIS Committee called for a change in the surplus sharing arrangements and an immediate uplift in mineworkers’ pensions, to be funded by a transfer to the scheme of the funds in the Investment Reserve:

• The Government should also relinquish its entitlement to the Investment Reserve, and transfer the £1.2bn fund to miners, to provide an immediate cash uplift to former miners.
• The Mineworkers’ Pension Scheme report finds that, given the strong financial performance of the Mineworkers’ Pension Scheme, and the “vast sums” which have been paid to the Government, it is “unconscionable” that many of the Scheme’s beneficiaries are struggling to make ends meet.
• The Committee’s report examines the Scheme’s controversial 50:50 split surplus sharing arrangement and notes that “allowing the arrangement to continue would appear antithetical to the Government’s stated aim of redressing socio-economic inequality and ‘levelling up’ left-behind communities”.
• The arrangement was agreed in 1994 in return for a Government guarantee that the value of pensions would never decrease.
• The report notes that, to date, the Government has received £4.4bn in cash payments from the Scheme and is due to receive at least a further £1.9bn – at least £6.3bn in total. The Government has not paid anything into the Scheme, and the Committee’s inquiry heard it is extremely unlikely that it ever will (BEIS Committee press release, 29 April 2021).

The MPS trustees said they welcomed the report and supported the recommendations within it.

In its response to the Committee on 28 June 2021, the Government said it was unable to agree to the Committee’s recommendations. The trustees had been “clear that they would prefer to retain the guarantee rather than take 100% of future surpluses.” The Government continued to believe that “the arrangement agreed in 1994 was fair and beneficial to both Scheme members and taxpayers. Scheme members have rightly shared in the benefits, but the Government has taken on all the risk.” (Government response to BEIS Committee report on the MPS, HC 386 2021-22, 5 July 2021).

Chair of the BEIS Committee, Darren Jones it represented “a slap in the face for pension scheme members that the Government is continuing its ‘take it or leave it’ approach on arrangements around the Government guarantee.” (Mineworkers’ pensions – Government’s response ‘slap in the face’ for scheme members, says Business Committee Chair, 5 July 2021).

The MPS trustees expressed their disappointment that the Government had rejected the Committee’s recommendations, which they strongly supported (BEIS Committee report: response from Government, MPS website 5 July 2021).

The National Union of Mineworkers (NUM) called for “a more balanced approach to the distribution of surplus funds, with the recommendation that its entitlement to the Investment Reserve of £1.2bn is also redirected to pension members.” (NUM demands a fair deal for mineworkers, 5 July 2021).

A petition on the Parliament website calling on the Government to implement the BEIS Select Committee recommendation on Mineworkers’ Pension Scheme has 4,543 signatures.