Tata Steel has struck a deal to restructure its British pension fund, in a move that follows months of negotiations and brings the troubled industry a bit more financial stability.
The Indian conglomerate said it had reached an agreement with regulators and pension bodies that will allow it to offload the £15bn British Steel Pension scheme.
The settlement involves a rarely-used legal mechanism called a regulated apportionment arrangement, which allows an employer in financial difficulties to rid itself of defined benefit pension liabilities.
A final deal was signed off by the trustee of the BSPS, the UK pension regulator and the Pension Protection Fund, which is the lifeboat for failed retirement schemes. The one remaining barrier to a definitive settlement is a 28-day period for legal challenges.
In exchange, Tata has agreed to inject £550m into the old scheme. Shares in Tata Steel UK will also be issued to the British Steel Pension Scheme Trustee under the terms of a shareholders’ agreement, which will lead to a 33 per cent economic equity stake in Tata Steel UK being held by the Trustee.
A new defined benefit scheme, which provides a guaranteed income in retirement, will be set up but with lower future payouts for retirees, which the company said would “give it an improved funding position which would pose significantly less risk for Tata Steel UK.”
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.
Considering the continued challenges in the global steel industry as well as the uncertain global politico-economic environment, the RAA presents the best possible structural outcome for the members of the British Steel Pension Scheme and for the Tata Steel UK business.
The RAA is one important milestone in Tata Steel UK’s journey towards a sustainable and enduring future, with pension obligations, whose risk profile would be consistent with the underlying business. The net financial impact of the RAA including the payment of the agreed amount would be reflected in the Q2 FY’18 financials for the company.