Tata Steel UK (TSUK) has confirmed it had signed documentation for a pact with the Trustees of the £15 billion British Steel Pension Scheme, which will allow the steelmaker’s pension scheme to be separated from the business, reducing the risks to the company.
The deal, which would remove the main obstacle to a potential merger of the company’s European business with Germany’s ThyssenKrupp and obviate the risk of insolvency, would cost the company £550 million and a 33% equity stake, under the terms agreed.
‘Best possible outcome’
“Considering the continued challenges in the global steel industry as well as the uncertain global politico-economic environment, the RAA [Regulated Apportionment Arrangement] 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, referring to the mechanism that allows a company in the U.K. to separate itself from its pension scheme to avoid insolvency under strictly defined criteria, including being able to show the risk of insolvency within the next 12 months without the deal.
“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 Pension Regulator (TPR) said its move to give initial approval for the restructuring came after ensuring it met “strict criteria designed 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 difficult situation,”’ said Lesley Titcomb, the chief executive of TPR. “In order to continue to trade, TSUK required ongoing funding from the Tata Steel Group, which it was not willing to provide until funding challenges for the existing scheme were resolved.”
The long-anticipated RAA follows the May announcement that Tata Steel had agreed its main terms. Should there be no referrals to the U.K. 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. The pension’s trustee would also be issued 33% equity in TSUK.
The terms of a new pension scheme, have also been agreed, to which members of the existing one would be invited to transfer, following the RAA, which would have lower future annual increases for pensioners and deferred members, posing “significantly less risk” for TSUK. Members who opted against transferring would be moved with the old scheme to the Pension Protection Fund, designed to protect members should their pension fund become insolvent.
“There remains no certainty with regards 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.
Unions welcomed the RAA and TSUK’s commitment to the new scheme, which put an end to the uncertainty their members had faced for over a year.
“Now that this choice is being delivered, the company and the trustees must step up to provide the necessary information and guidance to enable every member to make an informed decision in their best interests,” the Community, Unite and GMB unions said in a joint statement.