Tata Steel agrees deal to restructure UK pension fund

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Tata Steel U.K. said Friday it had signed an arrangement with pension trustees to separate the plan from the company, in exchange for a 550 million pound cash injection and stake for the pension fund in Tata's business.

When this takes effect through a regulated apportionment arrangement, Tata Steel will pay £550m into the BSPS and also give it a 33% equity stake in it's United Kingdom business. Tata Steel has been involved in ongoing discussions with the BSPS, the Pensions Regulator, and the Pension Provident Fund (PPF) over the settlement of liabilities. It was noted at that time that the RAA remained subject to the agreement of detailed documentation with the pension scheme Trustee, as well as formal approval by the UK Pensions Regulator and non-objection from the UK Pension Protection Fund.

Tata Steel today announced clinching of a new agreement that will detach the 15-billion-pound British Steel Pension Scheme (BSPS) from its United Kingdom business.

Slaughter and May advised long-standing client Tata Steel on the restructuring, with pensions and employment partners Charles Cameron and Phil Linnard, restructuring partner Ian Johnson, finance partner Andrew McClean and M&A partner Padraig Cronin comprising the team.

"There remains no certainty with regards to the eventual existence, size or form of the new scheme and the funding position and membership of any new scheme is still dependent on the results of the proposed voluntary membership transfer exercise", said Tata Steel.

Tata Steel's Group Executive Director Koushik Chatterjee said that considering the continued challenges in the global steel industry as well as the uncertain global politico-economic environment, the RAA presents the best possible structural outcome for the members of the British Steel Pension Scheme and for its Britain business.

Tata Steel UK said they had also reached an agreement for the sponsorship of a proposed new pension scheme.

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"The RAA is one important milestone in company's journey towards a sustainable and enduring future, with pension obligations, whose risk profile would be consistent with the underlying business".

Choosing to transfer to the successor scheme will give some members the potential to receive higher benefits than if they stayed in the BSPS on its entry to the PPF.

Lesley Titcomb, chief executive of the Pensions Regulator, said: "We do not agree to these types of arrangements lightly".

"For over a year our members have feared for their security in retirement, and this announcement helps to bring that uncertainty to an end".

A joint statement from the GMB, Unite and Community unions, stated "We welcome the RAA [Regulated Apportionment Arrangement] announcement which includes a commitment that Tata will stand behind a new scheme with reduced annual increases".

"The trustees believe that the BSPS has sufficient assets to fund benefits in the new scheme better than PPF compensation for most members, and to do so on a low-risk basis sustainably into the future".

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