Tata Steel Nearing Divorce from Pension

Deal to separate its pension plan from its business is imminent.  

Tata Steel is reportedly close to finalizing a deal that would cut loose its £15 billion ($19.5 billion) British Steel Pension Scheme (BSPS), a requirement for its proposed merger with German industrial group Thyssenkrupp’s European steel business.

Sky News reported that the Indian steelmaker will announce on Aug. 11 that it has signed a regulated apportionment agreement (RAA) with UK pensions regulators, and the company’s pension trustees.

In May, Tata’s British unit, Tata Steel UK Limited, and unions struck a deal that would reduce benefits for current employees, although the decision would affect all 130,000 members of the pension, including retirees. Tata Steel UK has offered to pay £550 million into its now-closed pension plan and give the fund a 33% stake in its UK operations.

At the time, Lesley Titcomb, chief executive of The Pensions Regulator, said that the key commercial terms of the RAA had been agreed to in principle between the company and the BSPS trustee.

“Pension restructurings which involve an RAA are rare,” said Titcomb in a statement, “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.”

Tata Steel UK has said that once the RAA is signed, all current and retired members of the BSPS would be offered an option either to transfer to a new pension plan sponsored by the company offering modified benefits, or to remain in the BSPS and receive Pension Protection Fund (PPF) compensation. For this to come into effect, said the BSPS, the new pension plan will be subject to certain qualifying conditions relating to factors such as size and funding level. If the qualifying conditions are not met, the new pension plan would not come into effect and all members of the BSPS would receive PPF compensation.

“Although the PPF is an important safeguard for pension schemes generally, the Trustee believes that the BSPS has sufficient assets to offer members the potential for better outcomes by enabling them to transfer to another scheme offering modified benefits,” BSPS Trustee Chairman Allan Johnston said at the time of the deal in May. “For most scheme members, these modified benefits are expected to be of greater value than those they would otherwise receive by transferring into the PPF.”

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