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British Steel Pension Scheme not expected to see deficit erased

Discussions on how to separate the plan remain ongoing

Tata Steel U.K., the sponsor of the British Steel Pension Scheme, London, has told the pension fund trustee it does not expect to meet the contributions required to close its deficit.

An update by the trustee of the £13.3 billion ($16.5 billion) pension fund, published on the fund's website, said the next actuarial valuation of the pension fund, scheduled for March 31, is expected to report a £1 billion to £2 billion deficit. This projection is based on lower returns by the pension fund as a result of needing to adopt more risk-averse investment policies, should the sponsor be unable to access additional capital from the wider Tata Steel Group.

Tata Steel U.K. “has confirmed that, given its current and projected performance, it does not expect to be able to pay the contributions required to close this deficit,” said the update.

The sponsor has been working with trade unions to develop and progress a transformation plan to improve performance and make the business sustainable. However, prior to making any commitments for the future, Tata Steel U.K. believes it is necessary to derisk and delink the pension fund from the sponsor, said the update. It said Tata Steel has indicated that a failure to implement this transformation plan could result in the U.K. affiliate becoming insolvent, pushing the pension plan into the U.K.'s pension fund lifeboat, the Pension Protection Fund, London.

The trustee has been in discussions with Tata Steel, the government, The Pensions Regulator, the PPF and others about how best to separate the pension fund from the sponsor.

“Closure is therefore necessary to achieve separation, and it would be an inevitable consequence of TSUK insolvency. If the only alternative is TSUK insolvency, the trustee would wish to agree to separation terms that offer members a choice between staying in the BSPS,” with the PPF taking over the payment of benefits, “and transferring to a new scheme that would provide modified benefits,” according to the trustee update. These benefits would be better than PPF compensation, said the update.

However, separation can only happen with the approval of both The Pensions Regulator and the PPF.