British Steel Pension Scheme pens £2bn buy-in with L&G

Tata Steel UK says it expects a further buy-in for remaining liabilities to transact this year

Jonathan Stapleton
clock • 2 min read
Tata Steel's Port Talbot plant. Credit: iStock

Tata Steel's Port Talbot plant. Credit: iStock

The trustees of the British Steel Pension Scheme (BSPS) have completed a third buy-in deal with Legal & General (L&G) – insuring a further 30% of its liabilities, worth around £2bn.

The scheme - which is sponsored by Tata Steel UK - said the transaction follows two previous buy-in deals with L&G in November 2021 and May 2022 which insured around 5% and 25% of liabilities respectively.

The deal means the scheme has now insured around 60% of its liabilities.

The transaction also comes after the BSPS trustee appointed Legal & General Investment Management to manage the combined assets of the scheme - a move that was designed to bring additional skills and expertise to the fund as it approaches full buy-in.

Tata Steel UK said it was "fully supportive" of the insurance deals entered into by the scheme - adding it expects a residual buy-in for the remaining 40% of liabilities would be completed in the first half of this calendar year, depending on market conditions.

It said with full insurance buy-in completed, both the scheme and in turn Tata Steel UK would be fully covered against any funding shortfalls arising from changes in underlying conditions or market variables in future.

Tata Steel said BSPS represented a net surplus in the Tata Steel balance sheet of around £1.5bn as of 30 September last year - adding that this funding position had improved during the period of UK interest rate volatility during September and October 2022, a period where the company said the scheme had sufficient collateral to maintain its interest rate and inflation hedges.

Overall, Tata Steel said the scheme continued to have a healthy surplus and its risk position had improved since both its restructuring in 2018, and quarter-on-quarter.

Tata Steel said that with each of the scheme's buy-ins, a portion of the accounting surplus had been utilised to secure insurance for the scheme.

It said this reduction in surplus - along with changes in the discounted present value of assets and liabilities resulting from changes in interest rates, credit spreads and other actuarial assumptions - meant Tata Steel would need to book a non-cash deferred tax charge in its profit and loss relating to the reduction in the pensions surplus. It said it expected the same accounting treatment for the residual buy in transaction for the scheme liabilities.

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