LONDON: Tata Steel today announced clinching of a new agreement that will detach the 15-billion-pound British Steel Pension Scheme (BSPS) from its UK business.
The so-called regulated apportionment arrangement (RAA) signed by Tata Steel with the trustee of the BSPS is expected to clear the way for the Indian steel major's potential merger with German giant ThyssenKrupp.
The BSPS had been the major hurdle to any future plans for Tata Steel in the UK and the latest move has been welcomed by workers' unions who had voted in favour of a deal earlier this year.
"When the RAA takes effect, the British Steel Pension Scheme will be separated from Tata Steel UK and a number of affiliated companies," the company said in a statement.
Under the agreement announced on Friday, Tata Steel UK has offered to pay 550 million pounds into the now-closed BSPS and give the fund a 33 per cent stake in its UK business. It would effectively mean that Tata Steel would no longer have any responsibility for the pension scheme.
"It is expected that the Pensions Regulator will confirm its approval of the RAA, which would take effect after Tata Steel UK makes a payment of £550 million to the British Steel Pension Scheme," the company said.
Also, shares in Tata Steel UK would be issued to the British Steel Pension Scheme Trustee under the terms of a shareholders' agreement, which would lead to a 33 per cent economic equity stake in Tata Steel UK being held by the trustee, it said.
The development follows the company's announcement on May 16 that the key commercial terms of an RAA had been agreed in principle between the company and pension scheme trustee.
Koushik Chatterjee, Tata Steel's group Executive Director, said: "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 members of the British Steel Pension Scheme and the Tata Steel UK business."
Chatterjee added: "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 agreement means BSPS members will have the choice either to transfer a new pension scheme sponsored by Tata, under which they will see lower future increases to their pensions than would otherwise be the case. If they choose not to, they could remain in the existing scheme which will transfer to the "lifeboat" Pension Protection Fund (PPF). The benefits offered by the new scheme are expected to be better for most members than those on offer for those from the PPF.
Trade unions Community, Unite and GMB in a joint statement said: "We welcome the RAA announcement which includes a commitment that Tata will stand behind a new scheme with reduced annual increases. For over a year, our members have feared for their security in retirement, and this announcement helps to bring that uncertainty to an end."
RAA is a mechanism which allows a financially troubled employer in the UK to detach itself from defined benefit scheme liabilities. Tata Steel said the agreement offered "more sustainable outcomes for pensioners, employees and the business".
After the arrangement comes into effect, it would separate the British Steel Pension Scheme from Tata Steel UK and the pension scheme’s other participating employers certain subsidiaries of Tata Steel UK.
The UK arm of the company also said it has reached a pact for the sponsorship of a proposed new pension scheme which would be conditional on certain qualifying norms.
Lesley Titcomb, Chief Executive of the UK's Pensions Regulator, said: "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."
BSPS trustees' Chairman Allan Johnston added: "It is the best outcome that could be achieved in the circumstances."