Tata Steel offers to pump £550m into closed pension fund

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Tata Steel UK has offered to pay £550m into its now-closed pension scheme and give the fund a 33% stake in its UK business.

The former British Steel scheme was shut at the end of March as part of Tata's plan to avoid going bust.

Tata said the injection of new cash and assets had been drawn up after talks with the UK pension authorities and the scheme's trustees.

It described those talks as "prolonged and intense".

The proposed deal, which involves the UK's pensions regulator and the Pension Protection Fund (PPF), aims to absolve Tata Steel of any further responsibility for the final-salary scheme.

The closure was supported by a vote of trade union members at Tata's plants in Wales, Scotland, South Yorkshire and Teesside in February, in the hope that the move would reduce the financial burden on the company and save their jobs.

However, it is still not clear if the British Steel Pension Scheme (BSPS) will continue as a free-standing entity or eventually fall into the hands of the PPF.

That is one of the issues that has still to be resolved, along with the size and shape of a new, but less generous, pension scheme that Tata has offered to set up for its 130,000 pension scheme members - pensioners and current employees.

The British Steel Pension Scheme trustees made it clear that the new deal did not amount to a full rescue of the fund.

"All members and pensioners of the British Steel Pension Scheme would be offered an option either to transfer to a new pension scheme sponsored by Tata Steel UK offering modified benefits, or to remain in the BSPS and so receive Pension Protection Fund compensation," the trustees said.

Lesley Titcomb, chief executive of the Pensions Regulator, said good progress had been made in the negotiations but stressed that the proposed regulatory apportionment arrangement (RAA) still needed to be signed off by all parties.

"Pension restructurings which involve an RAA are rare, and we will only approve an RAA where stringent tests are met, so that they are not abused by employers seeking to inappropriately offload their pension liabilities," she said.

'Stepping stone'

An RAA is an arrangement, allowed under pension law, which lets a financially troubled employer ditch its final-salary pension scheme if the only alternative is the company's insolvency.

The subsequent options involve:

  • the scheme being taken over by the PPF or
  • the scheme being offered cash and assets that might let it continue without employer support, while paying reduced benefits that are still better than those of the PPF, or
  • members being offered membership of a new scheme which offers benefits which are better than those of the PPF but still inferior to the old scheme.

The three trade unions at Tata Steel UK - Community, Unite and the GMB - said the suggested deal was a "stepping stone" to rescuing some of their members' benefits in a new, albeit less generous, scheme.

"The agreements we have reached with Tata are based on the understanding that all members will have the opportunity to choose whether to move to a new modified scheme or remain in the BSPS and so enter the PPF," they said.

The PPF said members would be allowed to move to this new scheme before the existing fund is assessed for entry to the pensions lifeboat.

"Members of the scheme can be reassured that we are there to protect them throughout this process and they will be able to receive at least PPF levels of compensation, should they remain in the scheme and BSPS enter the PPF assessment period."

The size of the deficit at the old British Steel pension scheme is estimated to be between £300m and £400m, but the cost of a full bailout could range between £1bn and £2bn if Tata Steel UK went bust.

The cost of the cash injection into the pension scheme meant that the wider Tata Steel company fell into the red in the last three months of the 2016-17 financial year.

It declared a loss for the quarter of $182m.

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