Tata Steel UK today welcomed the release of the UK Government’s public consultation on potential changes to the British Steel Pension Scheme. This follows intense discussions between Tata Steel, the UK government, the pension scheme trustees and regulators to find the best option for members of the scheme.
The consultation is the first step in a potential change to regulations which would enable the British Steel Pension Scheme to modify its benefits enabling it become self-sustaining and remain outside of the Pension Protection Fund.
The British Steel Pension Scheme is an exceptionally well managed and invested scheme. It has won numerous investment awards, including most recently Gold Award for Best Pension Scheme at the Investment & Pensions Europe Awards 2015.
Tor Farquhar, Human Resources Director for Tata Steel’s European operations, said: “This is an important step forward which would enable a better outcome for the vast majority of members of the British Steel Pension Scheme than the benefits provided by the Pension Protection Fund. The consultation is also an important step that supports the prospect of securing a sustainable future for Tata Steel UK’s 11,000 employees.
“In particular, we welcome the inclusion of an option to change the way that future payments in the scheme are increased. This option, which is fully supported by the pension scheme’s trustees, provides a way for the scheme to continue to operate on a well-funded, low-risk basis indefinitely.
“The British Steel Pension Scheme was set up on the basis that pension increases would be provided so long as they remained affordable. The proposed legislative changes would allow this unusual rule to operate as intended. That means it's unlikely that a regulatory change would affect other final salary pension schemes.”
However, in common with large Defined Benefit or “final salary” pension schemes generally, the scheme is very sensitive to changes in market conditions. This is despite an investment strategy which has focused on low-risk assets and significant liability reduction measures in 2006, 2012 and 2015. The British Steel Pension Scheme is now also considerably larger than its sponsoring business, Tata Steel UK, exposing both the scheme and business to risk.
Tor Farquhar added: “The proposed option to change future pension increases would significantly improve the funding position and risk associated with the British Steel Pension Scheme. It also produces a better outcome for the scheme’s members than entry to the Pension Protection Fund. We believe, together with the scheme’s trustees, that this is in the best interests of the scheme’s members, for both current and future pensioners.”
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Notes to Editors
About Tata Steel’s European operations
Tata Steel is Europe's second largest steel producer, with steelmaking in the UK and Netherlands, and manufacturing plants across Europe. The company supplies high-quality steel products to the most demanding markets, including construction, automotive, packaging, rail, lifting & excavating, energy and aerospace. Tata Steel works with customers to develop new steel products that give them a competitive edge. The combined Tata Steel group is one of the world’s largest steel producers, with a steel capacity of more than 28 million tonnes and 80,000 employees across five continents.
About the British Steel Pension Scheme
The British Steel Pension Scheme has a total of 133,000 members, made up of about 15,000 active members (working for Tata Steel), 33,000 deferred members (former employees not yet at retirement age) and 85,000 pensioners. At its most recent annual funding update (31 March 2015), the scheme’s assets were valued at £13.991 billion and the value placed on the liabilities was £14.476 billion, resulting in a deficit of £485 million, equivalent to a funding level of 97%.