Tata Steel UK to complete BSPS insurance buy-in in the first half of 2023

Tata Steel expects to complete full insurance buy-in of the British Steel Pension Scheme (BSPS) in the first half of calendar 2023. The move will cover Tata Steel UK against any funding shortfalls arising from changes in underlying conditions or market variables in the future.

Tata Steel on Friday said that 60 per cent liabilities of the BSPS were now insured. In December, the BSPS Trustee transacted a third buy-in policy with Legal & General, under which around 30 per cent of liabilities (£2 billion) were insured, bringing the total insured to around 60 per cent.

The company said that Tata Steel UK was 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 per cent of liabilities will be completed in the first half of calendar 2023, depending on market conditions.

The BSPS is an independent fund with a team managed by its own board of Trustees, separate from Tata Steel UK, the company. Earlier in 2022, the Trustee appointed Legal & General Investment Management (LGIM) to manage the combined assets of the scheme.

The Trustee entered into buy-in policies with Legal & General in November 2021 and May 2022 to insure 5 per cent and 25 per cent of liabilities respectively (totaling about £2.8 billion).

The company explained that with each buy-in, a portion of the accounting surplus has been “utilized” to secure insurance for the scheme. As of 30 September 2022, the BSPS represented a net surplus in the Tata Steel balance sheet of £1.5 billion.

The company said that 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),” the statement said.

“We expect the same accounting treatment for the residual buy in transaction for the scheme liabilities,” it added.