Tata Steel has formally announced today it is separating the British Steel Pension Scheme (BSPS) from the business.
Tata said it has signed the documentation for a regulated apportionment arrangement (RAA), which will mean the BSPS will be detached from Tata Steel UK, after reaching an agreement with regulators and pension bodies.
The move could pave the way for a merger between the Indian-owned firm and German company Thyssenkrupp, since the pension scheme, which supports 130,000 members, was seen as a key sticking point to any agreement.
Koushik Chatterjee, Tata Steel’s group executive director, said:
The RAA process has been a long and detailed one, and I would like to thank the Pensions Regulator, Pension Protection Fund, the Trustee of the British Steel Pension Scheme, its members, the unions and employees – indeed, all our stakeholders, including the governments of the UK and Wales, for their constructive engagement through the process.
The Pensions Regulator (TPR) confirmed it had given the green light to the Tata Steel proposal to restructure the BSPS, preventing the company from becoming insolvent. The BSPS and the Pension Protection Fund also backed the move.
The pensions watchdog said the proposal brings greater certainty for around 130,000 scheme members, "secures a significant cash contribution to the BSPS and minimises the impact on the Pension Protection Fund".
The BSPS will receive £550m from the Tata Steel Group, and a 33 per cent equity stake in TSUK. The remaining potential barrier is a 28-day appeal period during which there could be a legal challenge.
After the RAA is completed, members will be offered the choice of transferring to a new scheme, which will be sponsored by Tata Steel UK, or remain in the existing scheme which will transfer to the Pension Protection Fund.
Lesley Titcomb, chief executive of TPR, said:
We do not agree to these types of arrangements lightly but after several months of robust negotiations in this case, we believe that it is the best possible outcome for everyone involved in what is a very difficult situation.
TPR is willing to work closely and constructively with employers who face real challenges in meeting their pension obligations due to difficult trading conditions.
This proposal brings greater certainty for pension scheme members and unlocks the possibility of restructuring the company, which in turn could lead to preserving jobs.
The BSPS Trustee chairman Allan Johnston, said: "The BSPS trustees are pleased that Tata Steel UK Limited has agreed to sponsor the new scheme, subject to qualifying conditions.
"Although the Pension Protection Fund is an important safeguard for pension schemes generally, the trustees believe that the BSPS has sufficient assets to fund benefits in the new scheme that will be better than PPF compensation for most members, and to do so on a low-risk basis sustainably into the future."
In February, scheme members voted in favour of reducing member payouts in exchange greater job certainty for Tata Steel's workers.