Tata Steel Financial Results 2017/18
Tata Steel has today announced its financial results for 2017/18, which reflect the changes affecting the Old British Steel Pension Scheme, which has now entered a Pension Protection Fund (PPF) assessment period, and the launch of the new British Steel Pension Scheme.
The new BSPS was set up to have sufficient assets from the outset to pay benefits over the lifetime of the Scheme using a low-risk, cashflow-driven investment policy with a prudent buffer (or funding surplus) to cover risks.
The BSPS is sponsored by Tata Steel UK Limited (TSUK), whose parent, Tata Steel has today announced its financial results for the year to 31 March 2018. The announcement contains information about the Group’s pension arrangements including the BSPS. They show the effect of separating Tata Steel from the Old BSPS and they reflect a large surplus in the new BSPS. That surplus was calculated using best estimate assumptions in accordance with accounting standards applicable to Tata Steel's own accounts.
The way Tata Steel treats its pension arrangements in its own accounts is irrelevant to the way that the Trustee looks at the financial health of the BSPS.
The Trustee's first formal actuarial valuation of the BSPS, as at 31 March 2018, is now under way. Actuarial valuations require the use of prudent assumptions rather than best estimates. The Scheme’s 2018 valuation is expected to show that, even when using prudent assumptions, the Scheme still has a funding surplus on an on-going basis.
The security of members' benefits depends on the Scheme's funding position, the way assets are invested and the financial strength of the Scheme’s sponsor. If TSUK were to become insolvent, the Trustee would be required to use the Scheme's assets to secure benefits with an insurance company. An indication of the security of members' benefits is how the amount of assets compares with the cost of buying insurance policies that would secure all members' benefits in full. The 2018 valuation is expected to show that the Scheme has a shortfall on this buy-out basis, even though it has a surplus on a prudent on-going basis.
The new BSPS was designed to qualify for protection from the PPF so that, if TSUK were to become insolvent and the Scheme's assets were insufficient to secure benefits in full with an insurance company, members would receive at least PPF level compensation. Although there is now no reason to expect that TSUK will become insolvent in the foreseeable future, the Trustee cannot ignore the risk of that happening. The Trustee is seeking to ensure that members will receive their benefits in full in all circumstances.
The results of the 2018 valuation are expected to be communicated to members in the early part of 2019.
The BSPS Trustee was satisfied that separation of the old BSPS from Tata Steel was necessary to avoid an insolvency of TSUK. The terms agreed for separation secured a better outcome for the BSPS and its members than TSUK insolvency and was the best outcome that could be achieved in the circumstances.