The British Steel Pension Scheme with Tata Steel UK as Sponsor has completed a substantial part of its de-risking journey with 60% of its liabilities now insured by an insurance company
Mumbai, January 13, 2023: In December 2022, the British Steel Pension Scheme (BSPS) Trustee, has transacted a third
buy-in policy with Legal & General, under which around 30% of liabilities (~£2 billion) were insured, bringing the total
insured to around 60%. The buy-in insurance policies purchased using existing assets of the scheme, are held as long-term
investments of the Scheme and have the advantage of perfectly matching a proportion of the liabilities, thereby de-risking
the scheme from potential future mismatch between asset and liability values with changes in market variables. As of 30
September 2022, the BSPS represented a net surplus in the Tata Steel balance sheet of ~£1.5 billion. During the period of
unprecedented interest rate volatility in the UK in September-October 2022, the BSPS funding level actually improved,
and it had sufficient collateral to maintain its interest rate and inflation hedges. Overall, the scheme continues to have a
healthy surplus and its risk position has improved since its restructuring in 2018, and quarter-on-quarter.
The BSPS Trustee previously entered into buy-in policies with Legal & General in November 2021 and May 2022 to insure
5% and 25% of liabilities respectively (totaling about ~£2.8 billion). Tata Steel UK is fully supportive of the Trustee having
secured insurance cover of the scheme’s liabilities and expects that a residual buy-in for the remaining ~40% of liabilities
will be completed in the first half of calendar 2023, depending on market conditions. With full insurance buy-in completed,
the scheme and in turn Tata Steel UK will be fully covered against any funding shortfalls arising from changes in underlying
conditions or market variables in future.
With each buy-in, a portion of the accounting surplus has been “utilized” to secure insurance for the scheme. In addition,
changes in interest rates (along with changes in credit spreads and other actuarial assumptions) also results in changes in
the discounted present value of assets and liabilities. Accordingly, in line with previous quarters, there will be a non-cash
deferred tax charge in the profit and loss related to the reduction in the pensions surplus (which is recorded under other
comprehensive income). We expect the same accounting treatment for the residual buy in transaction for the scheme
liabilities.
The BSPS is an independent fund with a team managed by its own board of Trustees, separate from Tata Steel UK. Earlier
in 2022, the Trustee appointed Legal & General Investment Management (LGIM) to manage the combined assets of the
Scheme, bringing additional skills and expertise as the scheme approaches full buy-in
