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.
Under the restructuring, which has been given initial approval by the Pensions Regulator, Tata Steel will inject £550 million into the pension scheme and will give the trustees a 33 per cent equity stake in the United Kingdom business, which includes the vast steelworks at Port Talbot in south Wales.
The RAA process has been a long and detailed one, and I would like to thank the Pensions Regulator, Pension Protection Fund, the Trustee of the British Steel Pension Scheme, its members, the unions and employees - indeed, all our stakeholders, including the governments of the United Kingdom and Wales, for their constructive engagement through the process.
The Pensions Regulator has given its initial approval to the restructuring of the defined benefit scheme, in a proposal that secures a significant cash contribution to the BSPS and minimises the impact on the Pension Protection Fund (PPF).
Tata has agreed a final payment of £550m, and will also give the pension scheme a 33% stake in its United Kingdom business. Should there be no referrals to the United Kingdom 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 BSPS will receive £550m from the Tata Steel Group, and a 33 per cent equity stake in TSUK.
That would mean cuts to promised pensions of around 10%, primarily affecting the 58,000 of the scheme's 130,000 members who have yet to retire.
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Tata Steel Group Executive Director Koushik Chatterjee said the deal was an "important milestone in Tata Steel U.K.'s journey towards a sustainable and enduring future, with pension obligations whose risk profile would be consistent with the underlying business".
Following a member-consent exercise (explained below), the British Steel Pension Scheme would enter an assessment period with respect to its entry into the Pension Protection Fund.
The restructure of Tata steel pensions liabilities will no doubt signal the start of the proposed merger with Germany's Thyssenkrupp who would see the move as "de risking" Tata's pension. The arrangement will segregate BSPS from Tata Steel UK and the pension scheme's participating employers, which include certain subsidiaries of Tata Steel UK.
"What this delivers is a more realistic promise to scheme members, without the destruction of value that comes with the current PPF route".
Lesley Titcomb, chief executive of TPR, 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 hard situation".
Unions welcomed the agreement, saying it helped end members' uncertainty about their retirement income.
The British Steel Pension Scheme said it would write to its members in the next few weeks about the new scheme.