Trustees of the £15bn British Steel Pension Scheme have agreed the key commercial terms of a regulated apportionment arrangement with sponsor Tata Steel UK, which would see members offered modified benefits as part of a new scheme.
Announced in Tata Steel’s annual results on Tuesday, the proposed deal appears to be in line with the Pensions Regulator’s principles, but is still subject to regulatory approval.
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
Allan Johnston, British Steel Pension Scheme Trustees
In exchange for the deal, a member of the steel conglomerate would pay £550m into the BSPS, and the scheme would take a 30 per cent stake in Tata Steel UK. The scheme would then transfer to the Pension Protection Fund.
Additionally, Tata Steel UK would offer membership of a new pension scheme, paying modified benefits above PPF levels for most members. That scheme would not be created unless certain requirements are met.
Introducing the terms, Tata Steel said: “The RAA is subject to detailed documentation and formal approval by TPR and non-objection from the PPF, and the formal agreement of the individual entities who would be party to the RAA. These parties are in positive discussions and are hopeful of reaching final agreement shortly.”
Once an agreement has been reached, an RAA is subject to a 28-day period before approval by the regulator and non-objection by the PPF.
Lesley Titcomb, chief executive of the regulator, said in a statement she was pleased with the progress being made in its discussions with the scheme and sponsor, and confirmed that the terms appear to be in line with its principles.
“However, there are still important details to be finalised before we are in a position to approve the RAA and we are considering these carefully in light of their impact upon the 130,000 pension scheme members and PPF levy payers,” she added.
The terms in detail
The successor scheme to the BSPS will be subject to risk-related qualifying conditions around size and funding level, and will retain Tata Steel UK’s sponsorship.
The new scheme would also receive a proportion of the equity stake in its sponsor. The BSPS trustee confirmed that the assets would be invested in low-risk strategies, allowing the provision of benefits greater than PPF levels for most members.
The deal would be similar in principle to that struck over engineering company Halcrow’s DB scheme in May last year.
If members do not take any action over the offered scheme, they will transfer to the PPF as part of the BSPS.
A PPF spokesperson confirmed that the insolvency of Tata Steel within 12 months looked otherwise inevitable, and pledged support for members.
“Members of the scheme can be reassured that we are there to protect them throughout this process and they will be able to receive at least PPF levels of compensation, should they remain in the scheme and BSPS enter the PPF assessment period,” they said.
Chair of the BSPS trustees Allan Johnston said in a statement: “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.”
“[Tata Steel UK’s] willingness in principle to sponsor a new scheme post RAA, subject to conditions agreed with the BSPS trustee, paves the way to allowing members to make a choice based on their personal circumstances,” he added. The final outcome is expected to be communicated to members soon.
More to come?
That final outcome will be subject to regulatory approval. But industry experts speculated that the deal is all but done in practice.
“The fact that they’ve announced it, and the amount they’re paying in... it’s all done,” said Richard Farr, managing director at covenant advisory Lincoln Pensions.
Tata could inject £520m into BSPS in RAA bid
Earlier this year, Tata Steel reportedly offered to contribute £520m to the British Steel Pension Scheme as part of a bid to reach a regulated apportionment arrangement with UK pension authorities.
But he anticipated that further issues would arise involving the proposed joint venture between Tata Steel Europe and ThyssenKrupp, should the German conglomerate not want to share the risk of sponsoring the new scheme.
He also added that the new scheme will almost certainly require further funding from Tata, given that the £550m promised would only dent what was already a £1.5bn section 179 deficit by May 2016.
“The risk attached to the scheme is still multi-billion,” he said.
Steve Webb, director of policy at provider Royal London, doubted that the deal would have been announced if any further twists were in store for the scheme.
He welcomed the fact that the new scheme will not be a “zombie” sponsorless scheme, which had the potential to become a “one-way bet”.
