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Tata Steel Set to Offload £15 Billion Pension Fund

As the steelmaker looks to strengthen its balance sheet, the U.K.’s Pension Protection Fund says it has agreed to take on the scheme.

  • Joe McGrath

Global steel producer Tata Steel is poised to offload its £15 billion ($19.5 billion) British Steel retirement fund to the U.K.’s Pension Protection Fund, with a formal announcement expected on Friday, according to a trade union spokesman.

The news follows the company’s confirmation in March that it would close its existing defined benefit scheme. Since April 1, British Steel has been offering employees a defined contribution scheme in its place. The British Steel Pension Fund has around 130,000 members.

In its quarterly earnings announcement on Monday, Tata Steel confirmed that discussions between the pension’s trustees, the Pensions Regulator, and the PPF were at an “advanced” stage. (The Pensions Regulator regulates pension schemes in the U.K. and the PPF is the U.K.’s pension lifeboat fund, which compensates eligible employees when an employer can no longer pay out benefits.)

A spokesman for Community, a trade union representing steelworkers in the U.K., said he is anticipating an announcement from the company on Friday.

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In a written statement to the media, a spokesman for Tata confirmed that after “prolonged and intense” discussions with the three parties, the key commercial terms of a Regulated Apportionment Arrangement (RAA) — a restructuring mechanism that allows employers facing insolvency to offload their defined benefit pension scheme liabilities to shore up their business — had been agreed upon “in principle” and ratified by the PPF, but added that all “parties are in positive discussions and are hopeful of reaching a final agreement shortly.”

The spokesman told Institutional Investor that he is not in a position to confirm any of the specifics of the deal, nor could he say when further details will be released. He added that the terms would need to be agreed by the Pensions Regulator.

In May, Tata Steel offered to pay £550 million into the closed DB scheme and hand over a 33 percent share in its UK business, according to a BBC report. The company had launched a staff consultation about its retirement provision in December 2016, when it pledged to keep open its steelworks in Port Talbot, Wales until 2021.

In a written statement to Institutional Investor, a spokeswoman for the PPF said that “an insolvency event of the scheme’s sponsoring employer, Tata Steel U.K., would otherwise be inevitable” if the liabilities for the scheme remained with the company.

“It is anticipated that if risk-related qualifying conditions relating to funding and size can be satisfied, a new pension scheme sponsored by Tata Steel U.K. will be set up,” she said in the statement, adding that members would have the opportunity to move to that scheme before the existing scheme is assessed for entry to the PPF. “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.”