Tata Steel pensions deal paves the way to merger

Tata Steel has sealed a major pensions deal   Tata Steel's distribution and service centre at Wednesfield

Tata Steel has sealed a major pensions deal Tata Steel's distribution and service centre at Wednesfield

Travers Smith, Slaughter and May and Hogan Lovells have all advised as Tata Steel today signed a long-awaited agreement to separate its business from the £15bn British Steel Pension Scheme (BSPS), in what is the largest pensions scheme restructuring ever in the UK.

Britain's Pensions Regulator revealed Friday its initial backing to proposals by industrial giant Tata Steel UK Ltd.to pump £550 million ($713 million) into a company savings plan to ditch the scheme and avoid bankruptcy.

As part of the arrangement, Tata Steel UK will make a payment of £550 million to the British Steel Pension Scheme (BSPS), while 33 per cent of Tata Steel UK's equity will be issued to the scheme's trustee. Tata Steel has been involved in ongoing discussions with the BSPS, the Pensions Regulator, and the Pension Provident Fund (PPF) over the settlement of liabilities.

It follows an announcement on May 16 that the key commercial terms of an RAA had been agreed in principle between the company and pension scheme Trustee. Should there be no referrals to the United Kingdom court system in the next 28 days, TPR is expected to confirm its approval, subject to TSUK making a £550 million payment to the scheme. After the accord was signed, the pension regulator issued a clearance statement that marks the commencement of a 28-day period during which parties directly affected by the RAA may refer the decision to approve it before the Upper Tribunal of the United Kingdom court system. If they choose not to, they could remain in the existing scheme which will transfer to the "lifeboat" Pension Protection Fund (PPF).

That would mean cuts to promised pensions of around 10%, primarily affecting the 58,000 of the scheme's 130,000 members who have yet to retire.

"The Port Talbot Steelworks is the beating heart of our local economy and community, so the past 18 months have been particularly tough for our town", said Kinnock, adding: "Since those dark days of last March, when I travelled out to Mumbai with Community Union for crisis talks with Tata, the employees of Tata Steel UK, their families and our steel communities have been through hell". "We'd encourage members to consider the details and their position carefully and decide whether the new scheme or the PPF is the better option for them".

"For over a year, our members have feared for their security in retirement, and this announcement helps to bring that uncertainty to an end".

"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 hard situation", said Lesley Titcomb, chief executive of TPR. The arrangement will segregate BSPS from Tata Steel UK and the pension scheme's participating employers, which include certain subsidiaries of Tata Steel UK.

In a statement, the pension trustees said: "The New BSPS will pay the same benefits as the old BSPS except that future increases will be smaller".