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Tata Steel has offered to make a one-off payment of £520m into its UK pension scheme, in its latest effort to make a clean break from its large British retirement liabilities.
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The Indian steelmaker has put the offer to the trustees of the UK scheme — called British Steel Pension Scheme — as part of moves by Tata to try to hive off the retirement fund.
The proposed £520m payment into the BSPS is intended to release a guarantee the scheme holds over some of Tata’s Dutch assets. This charge is a significant barrier to efforts by Tata and ThyssenKrupp, its German rival, to combine their European steelmaking operations, including the Indian group’s UK assets.
Tata has been holding talks with ThyssenKrupp over merging their European assets after deciding to drop previous plans to sell its UK business, which is centred on Port Talbot in south Wales. The unit has struggled for years with weak earnings.
The BSPS is one of the largest private sector defined benefit pension schemes in the UK, with 130,000 members, and Tata regards it as a significant financial drag on the British business.
In January, the BSPS trustees warned the deficit in the scheme could increase to between £1bn and £2bn if it could not secure more cash from Tata.
Tata’s offer to make a one-off payment of £520m into the BSPS was first reported by the Economic Times. Tata did not immediately respond to a request for comment.
For the past year, Tata has been in talks with the UK Pensions Regulator and the BSPS trustees about hiving off the retirement fund as a standalone entity, with its liabilities capped.
Tata needs to convince the regulator that its UK business is on the brink of insolvency to enable the group to separate itself from the BSPS through a rarely-approved procedure.
Demonstrating that a business is on the brink of insolvency is a pre-requisite for obtaining a so-called regulated apportionment arrangement — a little used mechanism aimed at helping financially distressed companies by freeing them of their pension liabilities.
Earlier this year, Tata warned the pensions regulator that the BSPS would push its British operations into insolvency, but it has struggled to make that case because of an upturn in the steel market.
The regulator on Tuesday said it continued to have discussions with Tata and the BSPS trustees about the future of the scheme.
It added: “There are still significant issues to be resolved and we will consider all proposals carefully in light of their impact upon the 130,000 pension scheme members and Pension Protection Fund levy payers.”
A spokesperson for the PPF, an industry-funded lifeboat for the pension schemes of failed companies, said discussions between all relevant parties were continuing.
The BSPS trustees said: “The trustee, Tata Steel, and the various regulatory bodies are continuing to hold constructive discussions and it is too early to speculate on how these might conclude.”
In February, Tata’s UK workforce voted to accept the closure of the BSPS to further pension contributions.
However, the defined benefit scheme continues to pay benefits to retired members, and also has liabilities to Tata workers who have accrued benefits in it up to the point of closure.
A less-generous defined contribution scheme is being put in place by Tata for its UK workforce.
