Clarity has finally come to the long running saga over Tata Steel UK’s pension arrangements, as the company confirmed it had signed the documentation for an agreement with the Trustees of the £15-billion British Steel Pension Scheme, which will allow the scheme to be separated from the business, thereby, greatly reducing the risks to it.

The deal will remove the main obstacle to a potential merger of the company’s European business with Germany’s ThyssenKrupp, as well as the risk of insolvency, though it will cost the company £550 million and a 33 per cent equity stake, under the terms agreed.

RAA mechanism “Considering the continued challenges in the global steel industry as well as the uncertain global politico-economic environment, the RAA [Regulated Apportionment Arrangement] presents the best possible structural outcome for the members of the British Steel Pension Scheme and for the Tata Steel UK business,” said Koushik Chatterjee, Tata Steel’s Group Executive Director.

He is referring to the mechanism that allows a company in the UK to separate itself from its pension scheme to avoid insolvency under strictly defined criteria, including being able to show the risk of insolvency within the next 12 months without the deal.

The Pensions Regulator (TPR) said its move to give initial approval for the restructuring came after ensuring it met “strict criteria designed to stop employers abusing the RAA mechanism” and would “prevent the company becoming insolvent….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 outcome for everyone involved in what is a very difficult situation,”’ said Lesley Titcomb, Chief Executive of TPR.

“In order to continue to trade, TSUK required ongoing funding from the Tata Steel Group, which it was not willing to provide until funding challenges for the existing scheme were resolved.”

The long-anticipated signing of the RAA follows the announcement in May that Tata Steel had agreed its main commercial terms. Should there be no referrals to the UK court system in the next 28 days, the Pension Regulator is expected to confirm its approval, subject to Tata Steel UK making a £550-million payment to the scheme. The pension’s trustee will also be issued a 33 per cent equity stake in Tata Steel UK.

New scheme The terms of a new pension scheme, have also been agreed, to which members of the existing one will be invited to transfer, following the RAA, which will have lower future annual increases for pensioners and deferred members, posing “significantly less risk” for Tata Steel UK. Members who opted against transferring will be moved with the old scheme to the Pension Protection Fund, designed to protect members of a scheme should their pension fund become insolvent.

“The trustees believe that the BSPS has sufficient assets to fund benefits in the new scheme that will be better than PPF compensation for most members, and to do so on a low-risk basis sustainably into the future,” said Allan Johnston, Chairman, BSPS Trustee.

“There remains no certainty with regard to the eventual existence, size or form of the new scheme and the funding position and membership of any new scheme is still dependent on the results of the proposed voluntary membership transfer exercise,” said Tata Steel.

Unions welcomed the RAA and the company’s commitment to the new scheme, which put an end to the uncertainty their members had faced for over a year.

“Now that this choice is being delivered, the company and the trustees must step up to provide the necessary information and guidance to enable every member to make an informed decision in their best interests,” said the Community, Unite and GMB unions in a joint statement.

“Our members have been extremely disappointed at the lack of communication in recent months and this has to change immediately.”

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