UK arm pension issue: £520-m payment ‘only start of long journey’ for Tata Steel

Amid reports that Tata Steel is willing to pay £520 million ($663 million) into the pension scheme of its British subsidiary, pension consultants are sceptical that this amount will be enough to settle the issue entirely.

They believe the road ahead in tackling the company’s exposure to its pension scheme will remain long and complex.

The £520-million figure was likely to be an opening bid by Tata Steel, as it, the pensions regulator, and the pension protection fund continued their negotiations, says John Ralfe, an independent pensions consultant who has previously acted as an expert witness in a House of Commons committee inquiry into the Pension Protection Fund and pensions regulator.

“The £520-million figure is just the company’s version of events and may not be the PPF’s or the pension regulator’s. My sense is that we could be a way away from a deal. Agreeing a cash amount to the release of the guarantee is just the start,” he told this paper.

“If Tata Steel UK went bust and the British Steel Pension Fund entered the PPF, the regulator would try to make a legal case against Tata Steel Europe and all the intermediate holding companies all the way to India.”

Richard Farr, Managing Director at Lincoln Pensions, in London, noted that some of the media reports suggested the scheme could still be attached to the company as part of the proposed deal and that Tata’s plan could involve a two stage process with the £520-million pound likely to involve a shift to winding back the benefits of the scheme to above levels of the Pension Protection Fund.

“The £520-million figure could be enough to satisfy that transaction.”

He believes a second stage could involve separating itself from the pension scheme itself, which would involve further financing.

He noted the board’s announcement on Friday that it had approved the issue of ₹9,000 crore of debt securities, part of which he suggested could potentially be used towards the separation payment. “This is a very complex transaction,” he added.

Press reports have suggested Tata Steel could make a one-off payment under a new scheme called the Regulated Appointment Arrangement as part of efforts to separate itself from the ₹15-billion British Steel Pension Scheme, which closed to future accrual at the end of March.

Tackling the issue of pension liabilities will bring the company closer to a potential merger with Germany’s ThyssenKrupp, with whom talks have been ongoing since last year. Tata Steel has declined to comment on the reports.

A spokesperson for PPF said: “Discussions between all relevant parties on the future of the British Steel Pension Scheme are continuing. The Pension Protection Fund is committed to working with all parties to find a solution that is in the best interest of our levy payers and the 11 million people who are protected by us, including the members of the British Steel scheme.”

“The Trustee, Tata Steel, and the various regulatory bodies are continuing to hold constructive discussions and it is too early to speculate on how these might conclude,” said a spokesperson for the BSPS.

“The Trustee remains committed to securing the best possible outcome for Members and believes this would be achieved by allowing members to choose between staying in the BSPS (and so getting PPF compensation) and transferring to a new scheme that would provide modified benefits.

“For the vast majority of members and pensioners, the modified benefits provided by the new scheme would be better than PPF compensation. BSPS assets transferred to the new scheme would be used to provide the modified benefits with a high level of security and the possibility of progressive reinstatement of pension increases as and when circumstances allow.”