Global steel producer Tata Steel has confirmed a deal, revealed last month, with the U.K.s Pensions Regulator to offload the £15 billion ($19.75 billion) British Steel Pension Scheme and establish a new scheme.
Under the deal, Tata Steel U.K. will be allowed to separate the scheme from the business and some other affiliated companies, but it must pay £550 million into the defined benefit scheme and it will also award the schemes trustees shares in the U.K. business that are equivalent to a 33 percent equity stake.
Tata confirmed on Monday that it will also sponsor a new pension scheme, which employees will have the opportunity to transfer into. The company said while the new scheme will offer lower future annual increases for pensioners and deferred members than the existing scheme, it will pose significantly less risk to the company.
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Members of the British Steel Pension Scheme will now have the choice of switching to the new scheme or moving with the old scheme into the Pension Protection Fund the U.K.s lifeboat scheme, which pays pensions when an employer can no longer afford to do so.
In a statement announcing the terms of the arrangement, Koushik Chatterjee, group executive director for Tata Steel, said the deal was the result of many months of hard work, adding, Although much work is still needed to ensure the business is competitive in future, the next step in this pensions process involves necessary formalities to set up the new scheme with a lower risk profile following the necessary member consent process led by the trustee.
Chatterjee acknowledged that it will take some time to implement the new scheme because of the wide membership base of the original scheme, which has around 130,000 members. He added that the net financial impact of the £550 million settlement amount will be reflected in the second quarter 2018 financial statement of the company.
Tata Steel first announced its intention to close the existing defined benefit scheme in March of this year, instead offering a defined contribution scheme in its place. The changes were the result of continuing discussions between the company and trade unions about the sustainability of the U.K. business and was one of the conditions for the company continuing to employ staff at its plant in the Welsh town of Port Talbot until 2021.
Representatives from the three trade unions involved with the negotiations Community, Unite, and the GMB released a joint statement on Monday saying that they hoped this would offer their members some certainty in retirement.
We fought to ensure that our members can choose whether they want to transfer to a new modified scheme, underpinned by Tata, or to remain in the BSPS and therefore receive PPF compensation, a spokesman said in the statement. 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.