Tata Steel UK has signed a regulated apportionment arrangement (RAA) with the trustee of the £15 billion ($19.5 billion) British Steel Pension Scheme (BSPS) that will separate the pension from Tata Steel UK, in exchange for of £550 million and 33% stake in the company.
“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,” said Koushik Chatterjee, Tata Steel’s group executive director.
The Pensions Regulator (TPR) has given its initial approval to the deal, and issued a determination notice and a clearance statement in response to Tata Steel’s application for clearance and approval in respect of the RAA. This kicks off a 28-day period, during which directly affected parties by the RAA may refer the decision to approve the RAA before a tribunal of the UK court system.
At the end of the 28-day period, and in the absence of any referrals, it is expected that TPR will confirm its approval of the RAA, which would take effect after Tata Steel UK makes the £550 million payment to the BSPS, and issues shares in Tata Steel UK, which would lead to a 33% economic equity stake in Tata Steel UK being held by the Trustee.
“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,” said Lesley Titcomb, chief executive of TPR.
“We have worked closely with the scheme trustees and the Pension Protection Fund to maximize the value received by the scheme.
Tata Steel UK said it has also reached an agreement for the sponsorship of a proposed new pension plan. Sponsorship of the plan is conditional on certain qualifying conditions being met. All members of the BSPS would be invited to transfer to the new scheme subsequent to the completion of the RAA. If the qualifying conditions are met, members will be able to transfer to the new plan.
Tata said the new pension will have lower future annual increases for retirees and deferred members than the BSPS, giving it an improved funding position “which would pose significantly less risk for Tata Steel UK.”