LONDON (Reuters) - The British Steel Pension Scheme’s deficit has shrunk to around 50 million pounds ($61 million) from around 700 million pounds earlier this year, it said on Monday, adding it had been well-position to take advantage of currency movements.
The pension scheme is seen as a major obstacle to a possible joint venture deal between Tata Steel, its principal sponsoring employer, and Germany’s Thyssenkrupp to manage Tata’s remaining UK operations.
In an emailed statement, the British Steel Pension Scheme said an actuary estimated at a board meeting on Oct. 21 that the deficit had fallen to around 50 million pounds.
It had been “well positioned for what has been happening in bond and currency markets in recent months” and had taken the opportunity to lock in gains from equity investments.
Tata Steel, which inherited the pension scheme when it bought Corus, formerly British Steel, for $12 billion in 2007, declined to comment on the revision.
Analysts said the reduced deficit did not address all the problems and that volatility could remain even though the scheme had removed some risk.
“It demonstrates that market conditions have changed and could just as easily have deteriorated,” Martin Hunter of pensions consultants Punter Southall said.
If an employer was not able to support the scheme in future, the deficit would be higher, he added.
The government said in May that the scheme - which has roughly 125,000 members and only about 10,000 people still paying into it — had assets of 13.3 billion pounds and liabilities of around 14 billion pounds.
But sterling has shed nearly 18 percent against the dollar since Britain’s June 23 vote to leave the European Union, boosting many of the blue-chip FTSE 100’s international companies, which earn much of their revenues in dollars and therefore get a currency-related accounting lift.
Since the start of the year, the FTSE 100 is up around 13 percent, although down around 7 percent in U.S. dollar terms.
The volatility and uncertainty generated by Brexit have added to the difficulties facing many pension schemes, which have been struggling to find returns in an ultra-low interest rate environment.
Additional reporting by Simon Jessop; Editing by Alexander Smith