The National Union of Mineworkers (NUM) is demanding that Government rethink its findings and give mineworkers a fairer deal following the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee Report.
Campaigning for a review of the Mineworkers’ Pension Scheme (MPS) since 1999, the NUM has always believed that former mineworkers should be entitled to a greater return than the ‘option of a guarantee with a 50:50 split’ of surplus funds imposed back in 1994.
Having commissioned two complementary independent reports, The MPS Guarantee, UPS Memorandum, 1 Feb 2018; and A Fair Division of Surplus in the Mineworkers’ Pension Scheme, First Actuarial, Jan 2018; the NUM provided evidence that, in both cases, conclude the unfairness of the current distribution of surplus funds.
The first report, the MPS Guarantee, found:
- It is in Members’ interests to retain a Guarantee, but due simply to the passage of time, it would, in any event, be reasonable and fair to review the terms of the Guarantee.
- There are, in addition, more specific issues, that now justify such a review, including:
- First, the lack of any meaningful assessment of the appropriate return for the Guarantee;
- Secondly, the existence of other forms of protection for members’ benefits, unlike the situation when the Guarantee was first established;
- Thirdly, the inappropriate use of ‘prudent’ assumptions in the valuation used to operate the Guarantee that are, in practice, an apportionment of assets, as opposed to determining contributions;
- Fourthly, the inconsistency between the timing of the Scheme’s liabilities and the provisions for making payments to the Government; and
- Fifthly, the relatively low level of benefits paid by the Scheme.
The second report, A Fair Division of Surplus in the Mineworkers’ Pension Scheme, found:
- The median gain made by the Government amounts to £23 billion in real terms over the next 60 years and, due to the potential for the Government to achieve very large gains, the gains made are skewed upwards to £55 billion, while;
- The probability of the Government incurring any sort of loss through the arrangements over the next 60 years is only about 3 per cent, and the probability of a loss greater than £10 billion, in real terms, is exceedingly low.
General Secretary of the National Union of Mineworkers, Chris Kitchen, comments: “The findings from both of our independent reports, along with BEIS, make it clear that the distribution of surplus funds – not including the Investment Reserve – should be reviewed on the grounds of ethics and fairness.
“The Government talks about levelling up but is content with taking funds from retired miners without ever having contributed a penny.”
The MPS Guarantee, UPS Memorandum states:
- The Government had a clear moral obligation on privatisation to protect the pension arrangement of current and past mineworkers who had worked for British Coal.
- It was in the Government’s own interest to take the pension obligations off the table when seeking to maximise value for money when completing the sale of the assets of British Coal.
- Simply given the time that has elapsed since the Guarantee was agreed, it seems responsible to ask that there should, in any event, be a review of how it operates.
Chris continues: “Within our first report it states: ‘We now know a lot more about the finances of the MPS and the risks that it faces than was known in 1994, when the agreement was made. However, given the size of the sums involved, it is not surprising that successive Governments have sought to avoid any such review’.
“While this may be the case, for the sake of our members and their families, we will continue to fight for a fair deal. It is only right.”
Since 1996 the Government has accrued £4.4 billion in payments from the MPS under the terms of the Guarantee that is in place, while members have received Bonus Augmentations of around 30 per cent of their guaranteed benefit.
The NUM was not involved in establishing the terms of the original agreement and has argued consistently for changes that would achieve a fairer outcome for retired mineworkers and their families.
The NUM will continue to lobby the Government and campaign 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. For further details about the NUM, please visit: http://num.org.uk/
Mineworkers’ Pension Scheme: Government Response 1
Fourth Special Report
On 29 April 2021, the Business, Energy and Industrial Strategy Committee published
its Sixth Report of Session 2019–21, Mineworkers’ Pension Scheme (HC 1346). The
Government’s response was received via correspondence on 28 June 2021. The
Government’s response is appended below. The Committee’s recommendations are in
bold type, the Government response is in plain type.
Letter from the Minister of State for Energy, Clean Growth and
Climate Change, 28 June 2021
I am writing to respond to your Committee’s report into the Mineworkers’ Pension
Scheme (MPS) published on 29 April 2021.
Thank you for conducting the enquiry and for the opportunity to respond to the report.
The enquiry enabled issues surrounding the MPS to be aired and considered thoroughly. I
am pleased to see that all parties recognise the reassurance that the guarantee has provided
and the ability it has brought the Trustees to invest so as to maximise returns and generate
bonus pensions for their members.
I met the Trustees on 21 June to discuss the Committee’s report and it was very useful
to get their views on how we might move forward. I asked them whether they might feel
able to proceed without the continued Government guarantee, which would enable all
surpluses to be shared amongst scheme members. However, there are numerous examples
of pension schemes that have been unable to meet their basic obligations, let alone increase
pensions to the extent the MPS has under the current arrangements. The Government
continues 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.
In the meantime, I am unable to agree to the Committee’s recommendations. The
Government response to the report is set out in the attached annex.
2 Mineworkers’ Pension Scheme: Government Response
Appendix: Government Response
Mineworkers’ Pension Scheme
1. The Scheme’s Trustees had little choice but to accept the Government’s proposal to
divide future surpluses on a 50:50 basis, as a condition of securing the Government’s
guarantee during the negotiations in 1994. (Paragraph 16)
2. The Government failed to conduct due diligence during the 1994 negotiations and
undertook no empirical analysis or evaluation to inform or support the 50:50 split it
proposed. The Government was negligent not to take actuarial advice. (Paragraph 17)
3. The 50:50 split was, and remains, arbitrary. (Paragraph 18)
4. To date, the Government has received £4.4bn from the Mineworkers’ Pension
Scheme. This is already more than the 1994 expectations of what the Government
would receive. The Government is also due to receive at least another £1.9bn, on top of
50% off any future surpluses. (Paragraph 22)
5. The Government has not paid any funds into the Scheme since the surplus sharing
arrangement was put in place in 1994. (Paragraph 23)
6. The Government does not accept that the Trustees had no choice about the
Government proposal in 1994. We note that if the Trustees did not think the 50:50
offer was a reasonable one, they could have declined the offer of the guarantee at that
time. BEIS Ministers would still be happy to discuss that option with them. Without the
Government guarantee, Scheme members would have access to all surpluses. However,
there are numerous examples of pension schemes that have been unable to meet their
basic obligations, let alone increase pensions to the extent the MPS has under the current
arrangements. The Government continues 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.
7. That the Government has received more than anticipated is a sign of the success
of the arrangements. The Scheme members have also benefitted to a greater extent than
expected, and that success should be welcomed. Similarly, had the Scheme been in a
position to have required the Government to have paid into it, members would not have
received bonus pensions to the same extent. That should be seen as an achievement both
of the guarantee arrangements and of the Trustees’ stewardship of the Scheme and should
Fairness of the current terms
8. Many former mineworkers have chronic health issues directly related to their
former occupation, and the former coalfields are amongst the most deprived areas of
the UK. Sadly, their numbers are also decreasing year by year. Over half of Scheme
members receive less than the average pension. Given the success of the 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. (Paragraph 31)
Mineworkers’ Pension Scheme: Government Response 3
9. We recognise that the Government’s guarantee is important, has contributed to
the success of the Scheme, and has benefitted Scheme members. However, we are not
convinced by the Government’s argument that its entitlement to 50% of surpluses
is proportionate to the relatively low degree of risk it actually faces in practice. The
number of Scheme members and the relative size of the fund has fallen significantly
since 1994. Yet, the Government’s ‘price’ for the guarantee has not been adjusted to
reflect that fact. With no formal period review mechanism built into the agreement,
pension members remain tied to an expensive arrangement. (Paragraph 46)
10. Given that the Scheme has continued to produce strong returns despite the 2008
Financial Crisis and the COVID-19 pandemic, there is little reason to believe the
Government will be required to pay into the Scheme before it is wound-up. Even if, in
extremis, the Government is required to financially contribute at some point in the
future, realistically its contribution will not come close to the (at least) £6.3bn it is
currently due to receive in total. (Paragraph 47)
11. Whether or not the Government knew in 1994 that it would disproportionately
benefit from the arrangement, and whether all parties thought it was fair at the time,
is irrelevant. It is patently clear today that the arrangements have unduly benefited
the Government, and it is untenable for the Government to continue to argue that the
arrangements remain fair. (Paragraph 48)
12. Governments should not be in the business of profiting from mineworkers’
pensions. We are therefore disappointed by the Government’s argument that the 1994
agreement is a success because the public purse has had strong returns from it. The
Government is not a corporate entity driven by profit-motives, and should not view
miners’ pensions as an opportunity to derive income. We also note 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.
13. The Government recognises the harsh conditions in which coal miners worked and
the health issues those conditions caused. At privatisation, the Government took on
British Coal’s liabilities and has since compensated former miners and their families for
the damage done to their health.
14. Those liabilities included the pension schemes in operation. Those were broadly left
unchanged in respect of the entitlements of scheme members. That some payments are
limited reflects the arrangements of the schemes inherited and the short service pre-1994
that counted towards those pensions amongst other things.
15. As indicated above, if the Trustees believe that 50% of surpluses is too high a price to
pay for the guarantee and want to extract themselves from the guarantee arrangements,
BEIS Ministers would be happy to have that discussion. However, they have clearly
indicated that having the guarantee is worth more than the share of future surpluses.
The Government is happy to continue to provide the guarantee and the assurance of the
payment of future pensions that gives.
16. The Government does not accept that it has benefitted unduly from the arrangements
which have been a success and benefitted all parties. Indeed, the concerns about the extent
of payments to the Government for its share of surpluses have only arisen as a result of the
4 Mineworkers’ Pension Scheme: Government Response
Scheme’s success. Had the investments not provided as good returns over the years, we
would not be having this debate, but Scheme members’ pensions would be considerably
17. In respect of levelling up, it is proper that the receipts of the Scheme go to the Exchequer
for distribution according to the priorities on which the Government was elected. It
was never intended that the Government’s share of surpluses would be ringfenced for
the benefit of Scheme members or wider coalfield communities. The Government must
consider the needs of all communities.
Changing the terms of the 1994 agreement
18. The Government is disingenuous in claiming the Trustees are content with the
terms of the current arrangements. The Trustees have been clear that they are not –
and never were – happy with the terms, and that they would welcome any changes in
members’ favours. The Government should not mistake the Trustees’ acceptance of the
deal for contentment. (Paragraph 53)
19. We are disappointed by the Government’s dismissive approach to proposals to
review the existing arrangement. The Minister’s claim of openness is contrary to
the approach successive governments have taken since 1994. The Government must
approach any future discussions with the Trustees with a genuinely open mind, and
with the best interests of the pension members in mind. (Paragraph 54)
20. With the benefit of hindsight, it is clear that the Government has already profited
greatly from the Scheme. The Government must acknowledge that continuation of the
arrangements in their current form deserves a review and a better outcome for pensions
should be found. The current arrangements should be replaced with a revised agreement
in which the Government is only entitled to a share of surpluses if the Scheme falls into
deficit, and the Government has to provide funds. In that event, the Government should
be entitled to 50% of future surpluses up to the total value of the funds it has provided
to make up any shortfall. Such an arrangement takes account of the vast funds the
Government has received thus far and the significant reduction in the risk it faces, and
would ensure that neither party will be out of pocket in future. (Paragraph 58)
21. Whilst we have called for the 50:50 split to be replaced with a more appropriate
arrangement moving forward, we believe pensioners should also receive a more
immediate uplift. We recommend that the Government hands the £1.2bn it is due to
receive from the Investment Reserve back to miners, and sets out its proposals for how
and when this will be administered in response to this report. (Paragraph 63)
22. The Trustees have been clear that they would prefer to retain the guarantee rather
than take 100% of future surpluses. In the changes to the Scheme that they suggested in
2019, which were agreed by the Government, they prioritised the protection of bonuses
that had accrued over changing the surplus sharing arrangements.
23. As BEIS Ministers stated to the Trustees on 21st June 2021, the Government is always
open to suggestions of ways to improve the schemes, as the recent changes show. The
Government is happy to consider ways to improve benefits, though this has to be weighed
against the risks to taxpayers.