OBSPS secures £2 billion pension insurance buy-in

Under a buy-in, the plan sponsor is responsible for the payments to participants, while in a buyout, the insurance company is directly responsible for payments to participants

The trustees of the Old British Steel Pension Scheme (OBSPS) have secured a £2 billion pension insurance buy-in with the Pension Insurance Corporation, with a buyout expected to be completed by the end of next year.

Under a buy-in, the plan sponsor is responsible for the payments to the participants and beneficiaries, while in a buyout, the insurance company takes over responsibility for paying participants directly, and the plan is shuttered. Open Trustees Limited has been the plan’s trustee since March 2018.

The move guarantees future pension payments for the more than 30,000 members at, or above, levels of compensation provided by UK pension lifeboat the Pension Protection Fund (PPF). The plan entered PPF assessment in 2018 following the restructuring of Tata Steel UK Limited.

It has been difficult for the OBSPS members over the last few years, Jonathan Hazlett, managing director of Open Trustees, said in a statement. Whilst the PPF provides a valuable safety net and a significant level of protection, many members will now receive higher benefits than they might otherwise have expected.

The purpose of the PPF’s assessment process is to determine the funding position of a plan to decide whether or not the agency needs to take responsibility for it. If a plan is underfunded, it will be transferred to the PPF, and if it’s overfunded, it will look to a buyout with an insurer and exit assessment.

The PFF said that the as the Old British Steel Pension progressed through its assessment process, its funding position turned out to be better than expected. It was this improved funding that allowed the trustee to explore the possibility of securing member benefits outside the PPF.

With this buy-in policy in place, we expect the scheme will be able to exit our assessment process and complete a buyout, the PPF said in a statement. This is expected to happen towards the end of next year. Until then, members will continue to receive their benefits from the scheme in line with our compensation levels and can be reassured they remain protected by us.

The plan now goes through a period of reconciling member benefits and calculating uplifts where applicable, while the overall benefits are guaranteed by the Pension Insurance Corporation within a buy-in structure. The process is expected to be completed by the end of 2021, when the members will come out of the PPF and become direct Pension Insurance Corporation policyholders.