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UK roundup: Tata Steel, British Steel Pension Scheme, PPF 7800 Index

UK - Tata Steel’s UK subsidiary has agreed a number of changes to the British Steel Pension Scheme (BSPS) to address its funding shortfall, including enrolling new members into a defined contribution (DC) scheme from 2014.

While the £11.3bn (€13.7bn) scheme reported a Section 75 deficit of £500,000 in March 2010, prior to Tata becoming sponsor following its acquisition of Corus Group, the new sponsor said this would be the first funding shortfall for the BSPS.

Speaking at the EDHEC Risk conference late last month, investment committee member Allan Johnston declined to give the size of the deficit, but called it “manageable”, while a Tata spokesman told IPE the results of the 2011 triennial valuation were currently unknown.

The spokesman added that the changes, including a modified accrual rate, would allow the company to continue providing defined benefit (DB) provision by making it more sustainable, as well as reducing the risk it posed for Tata.

“As part of a comprehensive range of revisions to the contribution and benefits framework, the accrual rate will fall from 1/60ths to 1/65ths, and a longevity adjustment factor will be introduced to provide greater protection in case future increases in life expectancy are greater than assumed,” he added.

From April 2014, the scheme would be closed to new members, with workers instead enrolled into a “nursery pension arrangement” based around a defined contribution scheme, the company said.

However, DC members would be eligible to join the DB arrangement “at a future date subject to agreed conditions regarding the health” of BSPS, the spokesman added.

In other news, pension deficits have fallen for the second month running, according to data from the Pension Protection Fund (PPF).

It said the shortfall across its 7800 index was now 7% lower than in February.

According to the latest figures for the end of March, the 6,400 schemes covered by the lifeboat fund reported a funding ratio of 83.4%.

This was up marginally from the previous month but still a significant drop year-on-year when all funds reported a surplus of nearly £37bn.

The PPF said: “Over the month, scheme assets fell by 0.4%, and, over the year, there was an increase of 6.6%.

“Total scheme liabilities were £1,243.5bn at the end of March 2012, a decrease of 1.6% over the month and an increase of 32.8% over the year.”

A true year-on-year comparison will not be possible until the April figures are released, as the PPF altered its assumptions last year, reducing the aggregate balance by £35bn at the time.

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