The Pensions Regulator (TPR) has given initial approval to a proposal from Tata Steel for a restructure of the British Steel Pension Scheme (BSPS).
The restructure will separate Tata from the BSPS, prevent the company becoming insolvent, and is expected to provide greater certainty for around 130,000 pension scheme members.
The restructuring will be done through a regulated apportionment arrangement (RAA), only the second such agreement this year and the third in two years. Last year it emerged that just 24 RAAs had been agreed in the eight years since the mechanism was set out in law. RAAs allow the transfer of an employer's pension liabilities to the Pension Protection Fund (PPF), but only in extremely limited circumstances.
Under the agreement, the BSPS will receive £550 million from the Tata Steel Group, more than it would receive in insolvency, and a 33% equity stake in Tata Steel UK.
Pensions expert Stephen Scholefield of Pinsent Masons, the law firm behind Out-Law.com, said: “The deal is significant because of its size and because the challenges facing the British steel industry typify those facing old industries grappling with new competitors and legacy pensions dating back to when they were much bigger employers."
“As with all deals of this nature, it was necessary to demonstrate that without a deal the employer would have become insolvent, so the bar is set high,” said Scholefield.
When the RAA is complete pension scheme members will be able to either move to a new scheme sponsored by Tata Steel, or remain in the existing scheme which will transfer to the Pension Protection Fund.
Scholefield said this choice was an unusual one.
“In either case, members will see a reduction in their benefits. The big challenge for the trustee is to explain the choices in a way that everyone understands, so that as many people as possible make the decision that is right for them,” said Scholefield.
Tata Steel UK and BSPS trustees have initially agreed the plan and formal approval by TPR is expected in 28 days, provided the proposals are not referred to the Upper Tribunal. TPR has said it will not use its anti-avoidance powers with regard to BSPS.