Tata Steel UK's intention to close the British Steel Pension Scheme (BSPS) to future accrual has been "raised" in discussions with unions, according to a lawyer close to the matter.
Pitmans director Julian Richards who is consul for the National Steel Co-ordinating Committee, told PP the conglomerate sees the pensions issue as a major obstacle to selling the business.
Closing the scheme would be the first step to getting a regulated apportionment arrangement (RAA), which according to Richards is Tata's desired outcome.
He said: "We have known for the last couple of months that [Tata Steel UK] has indicated it wants to close the scheme and tie in the timetable with this potential joint venture with ThyssenKrupp, and they see the closure of the scheme as the first move to getting the RAA."
While no official notification of the 60-day statutory consultation has been issued, Richards added: "In discussions between the unions and employer it has been more than implicit they need to deal with the pensions issue or the joint venture goes away. It has been implicit in all those discussions they need to get this sorted out. It is obvious to everyone. I can see this from Tata's point of view. I don't agree with it but I can see the logic from their perspective."
This is part of a funding plan agreed with trustees to make regular contributions to close the deficit with another £65m expected in 2018.
Tata Steel neither confirmed nor denied it was planning to close BSPS to avoid paying the £60m or when it would issue a notification for the consultation period.
A spokesperson for the company said: "Tata Steel UK continues to be in active dialogue and engagement with all relevant stakeholders to develop options to support a sustainable future for the business and find a solution to address the costs, risks and volatilities of the BSPS and the risks this brings to the future of the Tata Steel UK business. These discussions are currently ongoing with stakeholders as it is important to continue to explore viable alternatives for the BSPS."
The firm is waiting for the outcome of the public consultation on the future if BSPS launched in May by the Department for Work and Pensions.
The BSPS trustees said in a statement: "The trustee is aware that Tata Steel UK intends to consult with its employees on proposals for future pension provision. Timing of the consultation is a matter for TSUK and its trade unions. Under the terms of the current recovery plan, the next payment of £60m is due on or by 31 March 2017. This payment is not affected by the company's consultation and would remain due. The same applies to the final recovery plan payment of £65m due on or by 31 March 2018."
Initially Tata Steel said the scheme had a deficit on technical provisions of £485m according to a 31 March 2015 valuation.
The deficit shrunk to £50m at the end of October due to currency movements. PP understands the scheme has benefitted from the fall in the pound since Brexit because it has large exposure to the US.
This change in the deficit offers an opportunity to avoid an RAA according to Richards. "If the covenant is weak when the 31 March 2017 valuation comes next year Tata Steel UK is probably looking at a minimum deficit of £1.5bn. If it is adequate they are probably looking at £500m.
"The argument has always been there is a massive deficit and no one can afford it. If that massive deficit goes away, it is a seismic change. I would like to see the company accept that, come back and say 'this is a different conversation'."
Richards would like to see the covenant strengthened and believes a smaller deficit makes this more achievable.
This would sit alongside the original scheme that would fall into the Pension Protection Fund. Richards would like to see a compromise where the company puts a mechanism in place for reviewing and increasing benefits pre-1997. This would be reviewed annually.
The future of BSPS is still very uncertain and it will continue to inspire much debate and speculation across the industry.
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