Wednesday, May 17, 2017

News: £550m pension payment proposal from Tata Steel

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Tata Steel has put forward proposals to pay £550m so it can move forward following the closure of the British Steel Pension Scheme (BSPS).

Last year, the Government launched a consultation on changes to the pension scheme - the huge pension liability with a deficit of £700m reported at the time - that was seen as a deal-breaker for prospective buyers of Tata Steel's UK assets.

The consultation followed intense discussions between Tata Steel, the UK government, the pension scheme trustees and regulators to find the best option for members of the scheme.

The scheme has assets of around £15 billion and 130,000 members, around two thirds of which are pensioners.

Earlier this year, the trustee warned that if Tata Steel UK (TSUK) could no longer access additional capital from the wider Tata Steel Group for continuation of business, then the trustee would have to adopt more risk-averse investment policies that are expected to produce lower investment returns. This could have led to a deficit of between £1 billion and £2 billion. In January, TSUK confirmed that, given its current and projected performance, it does not expect to be able to pay the contributions required to close this deficit.

Union members at Tata Steel sites in the UK, including in South Yorkshire, voted to accept a proposal to close the BSPS to future accrual and now the Indian-owned steelmaker has announced that it has agreed terms for an arrangement that would separate the scheme from Tata Steel.

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Working with the trustees, The Pensions Regulator and the Pension Protection Fund (PPF), Tata is hoping to secure a Regulated Apportionment Arrangement - a statutory mechanism which allows a company to free itself from its financial obligations to a pension scheme in order to avoid insolvency.

As part of the arrangement, Tata has agreed to pay £550m to the BSPS and BSPS is being given a 33% equity stake in Tata Steel UK (TSUK).

All members and pensioners of the BSPS would be offered an option either to transfer to a new pension scheme sponsored by Tata Steel offering modified benefits, or to remain in the BSPS and so receive PPF compensation.

The PPF is the safety net that provides compensation to members of eligible defined benefit pension schemes when things go wrong.

Trade unions also secured a guarantee from Tata that commits Liberty House, the new owner of the former Tata Speciality Steel sites in South Yorkshire, to honour the new defined contribution pension arrangements. This means that under the new owner, union members in Speciality Steels would be entitled to the same pension arrangements as members in Tata Steel UK, with employer contributions of up to 10%.

Allan Johnston, BSPS Trustee Chairman, said: "I am pleased that agreement in principle has been reached with TSUK about sponsorship of a modified pension scheme subject to qualifying conditions.

"Although the PPF is an important safeguard for pension schemes generally, the Trustee believes that the BSPS has sufficient assets to offer members the potential for better outcomes by enabling them to transfer to another scheme offering modified benefits. For most Scheme members, these modified benefits are expected to be of greater value than those they would otherwise receive by transferring into the PPF."

Tata Steel also reported its latest financial figures for the year ended March 31 2017. In Europe, EBITDA (earnings before tax) was £536m, compared to the loss of £52m in the previous year. The steelmaker said that this was due to "stronger market conditions, currency tailwinds, restructuring of UK operations as well as the ongoing improvement programmes, including the supply chain transformation programme which went live during the year."

During the period, Tata Steel completed the sale of its Speciality Steels business for a total consideration of £100m to Liberty House.

Tata Steel website

Images: Tata Steel


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