Tata Steel's proposal to close the British Steel Pension Scheme (BSPS) and replace it with a defined contribution (DC) plan has been accepted by steelworkers.
In a consultative ballot, more than 70% of members from three unions accepted the plan to close the defined benefit (DB) scheme to future accrual. It also includes a new DC scheme with 10% maximum employer contributions and 6% from employees.
The deal is a major development for staff that have been in a period of uncertainty since April 2016 when Tata Steel said it wanted to sell the UK business.
Community general secretary Roy Rickhuss said: "This result provides a clear mandate from our members to move forward in our discussions with Tata and find a sustainable solution for the BSPS.
"Steelworkers have taken a tough decision and have shown they are determined to safeguard jobs and secure the long-term future of steelmaking. Nobody wanted to be in this situation, but as we have always said, it is vital that we now work together to protect the benefits already accrued and prevent the BSPS from free-falling into the Pension Protection Fund (PPF)."
Reacting to the news BSPS trustee chairman Allan Johnston said: "The Trustee of BSPS welcomes the result of the Tata Steel UK staff ballot. The closure of the scheme is an important step in securing its future outside of the PPF and better pension benefits for members than is available to them under the existing PPF rules. We continue to have constructive discussions with Tata Steel, government and TPR about how the scheme will be supported in future. These discussions are ongoing and no decision has been taken."
There had been concerns that without radical changes to the pension scheme, it would end up going into the lifeboat fund.
However, unions also pointed out the government and company should honour the vote from steelworkers by supporting the industry going forward. "The UK government must now work in lockstep with the Welsh government and put steel at the heart of a manufacturing industrial strategy which ensures UK steel is used in all major infrastructure and defence projects," said Unite national officer Tony Brady.
Tata Steel could use a regulated apportionment arrangement (RAA) to achieve this separation but this would require convincing The Pensions Regulator (TPR) that it would become insolvent within the next 12 months.
Punter Southall principal Martin Hunter said: "Even if TPR can be convinced that insolvency is inevitable, this route is also likely to require a substantial contribution from Tata Steel or its parent company. This is because they would need to offer the pension scheme more money than it would expect to receive through an insolvency process."
Furthermore, the cash sum needed to achieve a separation could be in excess of £1bn, added Hunter.
Another obstacle to further developments on BSPS could be what happens to past benefits according to Lincoln Pensions managing director Richard Farr. "The bigger question has always been whether past benefits can still be protected. Based on this ballot result, any move by the employer to cut prior benefits, which they might explore at some point, will need the imminent insolvency of UK Steel to force it through."
- Tata Steel UK launched consultation in December 2016 proposing to close BSPS to future accrual
- This will be replaced by a new DC scheme with 10% maximum employer contributions and 6% from employees
- At the time unions called this is a "significant shift" in Tata's opening offer which included only 3% of employer contributions and 3% employee contributions
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