Rumours of buyout for British Steel scheme

With around 83,000 members, a bulk annuity deal covering the £10.5bn scheme would be the largest ever secured, excluding back-book transfers between insurers.

The fate of the BSPS and its members had been in jeopardy for many years, with a buyout deficit of around £7bn in March 2017. Later that year a £550m cash injection and a 33 per cent stake in sponsor Tata Steel UK persuaded the Pensions Regulator to grant a regulatory apportionment arrangement, facilitating the creation of a new scheme providing only minimum inflation-proofing, and the transfer of the old scheme to the Pension Protection Fund.

Now the new BSPS, which was joined by the majority of the old scheme’s 122,000 members, looks set to secure its reduced benefit promise in full, with Sky reporting that Rothesay Life, Legal & General and the Pension Insurance Corporation are all expected to be interested in striking a deal.

The BSPS Trustee declined to comment, although a recent newsletter informed members that “exploring all available options to improve the security of members’ benefits will be a key focus for the trustee board during the coming year”.

Alex Hutton-Mills, managing director at Lincoln Pensions, said: “Rumours of such a large transaction in a year already full of record deals will prompt questions about the capacity of the insurance buyout market. Lumpy deals of this nature may also affect demand-supply dynamics and pricing.

“Insurers will need to balance the desire to meet the ever-expanding demand with their ability to raise additional capital, source Solvency II-compliant assets, and secure adequate reinsurance (in particular for deferred members) to underwrite new policies. Some insurers will be better placed than others to find the right balance.”

Mr Hutton-Mills added: “Trustees will also need to be vigilant to less secure insurance solutions, and ensure they have performed sufficient diligence on the ability of potential providers to take on a scheme of this size.”