Tata Steel UK pension deficit £460m

Tata Steel’s European subsidiary faces a shortfall of £460 million, or 5%, in the funding position of its UK-based pension scheme.

British Steel Pension Scheme (BSPS), as it is called, is the largest defined benefit scheme in Tata Steel Europe’s portfolio.

The way it works, a valuation of the scheme’s assets is done every three years and any deficit is negotiated between the company and the trustees, and a mutual funding plan agreed upon.

“The BSPS triennial valuation as on March 31, 2011 has been completed and despite good investment performance, increases in the cost of providing pension benefits resulted in deterioration in the scheme’s funding position from 100% to 95%,” a company spokesperson told DNA.

Though the shortfall is not going to hit the company or its employees immediately, it will have an impact on its 157,000 members, of which almost two-thirds are pensioners, said sources.

An analyst with a domestic brokerage said the deficit, though just 5% of the total funding position, could be a concern since Tata Steel has a high debt level and it can’t avoid interest payments on that too. “It also matters whether the majority payouts from the scheme will happen in the next few years, or later in the decade.”

The company could not be contacted for clarity on the payout.

But company sources said the company has a plan to bring the scheme back to a fully funded position by March 2026.

“Plans have been agreed with the trustee for the company to make pension contributions on top of its regular contributions in order to return the scheme to 100% funding in coming years,” the spokesperson said, reiterating that the scheme’s investment performance in recent years has been better than average; it’s just that liabilities have risen faster.