Tata Steel agrees deal to restructure United Kingdom pension fund

Tata Steel seals pensions deal

Sky News has learnt that the Indian steelmaker is aiming to announce on Friday afternoon that it has formally struck a deal called a Regulated Apportionment Agreement (RAA) with United Kingdom pensions bodies and the company's pension trustees.

Tata Steel Ltd and the trustee of the British Steel Pension Scheme have agreed to terms to separate the plan from the Indian steelmaker's United Kingdom unit, eliminating the last hurdle for it to proceed with a strategy to place European operations into a joint venture.

The Pensions Regulator (TPR) said its move to give initial approval for the restructuring came after ensuring it met "strict criteria created to stop employers abusing the RAA mechanism" and would "prevent the company becoming insolvent....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 outcome for everyone involved in what is a very hard situation,"' said Lesley Titcomb, Chief Executive of TPR.

The stakeholders were hopeful of announcing a deal on Friday, although the timing remained subject to change, insiders said.

"There remains no certainty with regard to the eventual existence, size or form of the new scheme and the funding position and membership of any new scheme is still dependent on the results of the proposed voluntary membership transfer exercise", said Tata Steel. Members who opted against transferring will be moved with the old scheme to the Pension Protection Fund, created to protect members of a scheme should their pension fund become insolvent. RAA is a mechanism which allows a financially troubled employer in the United Kingdom to detach itself from defined benefit scheme liabilities.

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If they choose not to transfer, they would remain with the PPF.

The trustees of BSPS have maintained since the start of discussions a year ago that the scheme had sufficient assets, internal resources, and investment strategy to continue independently and provide benefits better than those paid by the PPF.

Tata acquired Corus, the former British Steel, in 2007.

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".

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.

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Doubts have arisen in recent weeks about whether the merger will proceed, however, even with a resolution of the pension issues.

On Wednesday, a Tata spokesman said the parties involved in pensions talks were in "positive discussions and we are hopeful of reaching a final agreement shortly", meaning the company could soon its United Kingdom pension scheme from its businesses.

"This was announced on 16 May 2017. If this RAA gains formal approval, it will only be the second that TPR has approved this year and the third in the last two years".

A Tata Steel spokesman in the United Kingdom told ET that the parties involved in the pension deal are in "positive discussions and we are hopeful of reaching a final agreement shortly".

The Pensions Regulator, PPF and BSPS trustees all declined to comment.

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