Tata Steel trustee warns of one to two billion pound pension deficit

Tata Steel UK’s trustee has warned members that it expects to report a one to two billion pound deficit at its next actuarial valuation at the end of March this year, Reuters has reported.

In a letter written to Tata Steel UK’s pension scheme members, the trustee has noted that its deficit has ballooned from its last actuarial deficit of £485m and could face insolvency if a resolution cannot be found.

The trustee communication also highlighted that the deficit had surged as the firm may no longer be able to receive funding from its parent, meaning the trustee would have to consider risk-averse investments and so cut returns as a result.

Tata Steel suffered a £2bn loss in the five years to March 2016 and is seeking regulatory approval to separate the £15bn pension scheme into a standalone entity.

"A deficit of this magnitude might require contributions of £100m to £200m each year for 15 years," said the trustee for Tata Steel's British Steel Pension Scheme (BSPS),” the trustee said.

"Tata Steel UK has confirmed it cannot afford to make deficit recovery contributions and indicated that without action, the likely outcome is that it would become insolvent.”

Furthermore, Thyssenkrupp’s CEO Heinrich Hiesinger said in an interview that Tata Steel must resolve its pension deficit for both its British and Dutch schemes before any merger can proceed.

The 130,000-strong British Steel Pension Scheme is one of Britain’s largest final salary schemes and was inherited by Tata when it acquired formerly state-owned British Steel Corus in 2007. If the company fails to recover its deficit, the scheme will fall into the Pension Protection Fund.

One possible resolution involves closing the scheme to future accrual and giving members the opportunity between staying in the scheme or getting PPF compensation and then moving into a new scheme from that.

"The trustee has therefore been in discussions with Tata Steel, the government, the pensions regulator, the PPF ... about how to separate the BSPS from Tata Steel in a way that secures better outcomes than entry into the PPF," the company said.

Lincoln Pensions managing director Richard Farr said: "The closure to future pension accrual was inevitable. The next critical question is whether there are any benefit cuts planned on the previously promised benefits?"

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