BSPS concludes further £2bn buy-in with L&G

Written by Jack Gray

17/01/2023

The British Steel Pension Scheme (BSPS) has transacted a third pension buy-in policy with Legal & General (L&G) for £2bn.

The £2bn deal covers a further 30% of scheme liabilities, bringing the total proportion of liabilities insured to 60%.

It follows two previous buy-in deals with L&G in November 2021 and May 2022, which covered around 5% and 25% of liabilities, respectively.

Tata Steel, the sponsoring employer of the BSPS, stated that it expected a residual buy-in for the remaining 40% of liabilities will be completed in the first half of 2023, subject to market conditions.

The firm added that it was fully supportive of the trustee having secured insurance cover of the scheme’s liabilities.

“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,” it noted.

According to Tata Steel, the BSPS represented a net surplus in the Tata Steel balance sheet of around £1.5bn, as at 30 September 2022.

It also asserted that during the period of interest rate volatility in September to October 2022, the BSPS funding level 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,” Tata Steel added.

“With each buy-in, a portion of the accounting surplus has been ‘utilised’ 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.”

In 2022, Legal & General Investment Management was appointed by the trustee to manage the combined assets of the scheme, which it said brought additional skills and expertise as the scheme approaches full buy-in.

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