Steel and the pusillanimous pension rule

4 May 2016/No Comments
By Nick Dunbar

How pension policy cowardice helped doom Britain’s steel industry

Tata’s decision to write off the value of its UK steelmaking business and seek a quick sale, while keeping its Dutch business, has sparked an intense political debate in Britain. But much of it is really a story about pension regulation and how it has impacted Tata’s UK pension fund – still known as the British Steel Pension Scheme – versus its Dutch counterpart, Pensioenfonds Hoogovens.

Tata inherited both when it bought Corus in 2007. In terms of size, BSPS has about 134,000 members, dwarfing Hoogovens which has 28,500 members. But in terms of assets they are not that different, with about £14 billion in BSPS and £6 billion in Hoogovens. More important than the assets are the liabilities of the two pension funds, and especially their ratio of assets to liabilities – the funding ratio – which relates to respective national pension regulations.

To explain how, I created a chart showing two separate comparisons over time. The first one compares the published funding ratios of BSPS and Hoogovens back to 2008 (and further for Hoogovens). You can see that Hoogovens’ funding ratio has always been above 100%, meaning it has never had a deficit, while since 2008, BSPS has never not had a deficit.

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