Regulator approves Tata’s bid to separate UK pension scheme

Tata Steel’s bid to offload its £15b UK pension scheme has been approved by the pensions regulator.

British Steel Pension Scheme (BSPS) announced that terms had been agreed for a Regulated Apportionment Arrangement (RAA) to separate the BSPS from Tata Steel.

The separation was completed today, after the Pensions Regulator issued its formal approval notice for the RAA.

As part of the separation, the BSPS has received £550 million from Tata Steel together with a 33% equity stake in Tata Steel UK Limited.

BSPS members now have two options: to switch to a new scheme (the New BSPS) providing the same benefits as BSPS but with lower future increases, or to remain with the current BSPS and move into the Pension Protection Fund (PPF).

The benefits offered by New BSPS are expected to be better than PPF compensation for the vast majority of current pensioners and for many other members. The New BSPS will go ahead only if certain qualifying conditions are met.

All 130,000 Members have already received the first in a series of newsletters outlining the proposals for separating BSPS from Tata Steel and the timetable for the consultation according to the BSPS.

Koushik Chatterjee, Tata Steel’s Group Executive Director, said:

The completion of the RAA follows many months of hard work to provide the most sustainable outcome for pensioners, current employees and the business.

I would once again like to extend my gratitude to all the stakeholders – in particular The Pensions Regulator, Pension Protection Fund, the Trustee of the British Steel Pension Scheme, its members, the unions, our employees and the governments of the UK and Wales.

Without their significant time and effort, as well as constructive engagement, this process would not have been completed.

Although much work is still needed to ensure the business is competitive in future, the next step in this pensions process involves necessary formalities to set up the new scheme with a lower risk profile following the necessary member consent process led by the trustee.

This will take some time to implement given the wide membership base of the scheme.

The net financial impact of the RAA including the payment of the agreed £550 million settlement amount will be reflected in the Q2 FY18 financials for the company.

The move now paves the way for a proposed merger between Tata and German steelmaker Thyssenkrupp.

Thyssenkrupp could reach an ‘agreement in principle’ as early as this month to merge its European steel business with Tata Steel.

According to a report by Reuters on Monday, the merger is entering ‘the final stretch.’

A spokeswoman for Thyssenkrupp has said the companies were close to a memorandum of understanding (MoU).

A MoU would then see each company take a detailed look at each others books prior to formal negotiations.

Links:

http://www.livemint.com/Companies/q4VEW0lE5r23ItjImz4hCL/Thyssenkrupp-says-Tata-Steel-Europe-merger-deal-may-come-in.html

https://www.ft.com/content/73ef1216-9703-11e7-a652-cde3f882dd7b