Tata Steel has agreed the "key commercial terms" of a regulated apportionment arrangement with the British Steel Pension Scheme (BSPS) in a deal that could be worth in excess of £550m.
The steel company's accounts for the year to 31 March 2017 - published on the Indian Stock Exchange today - said that after "prolonged and intense" negotiations with the BSPS Trustee, the Pensions Regulator (TPR) and the Pension Protection Fund (PPF) a deal in principle had been reached between Tata Steel UK and the BSPS Trustee.
It is understood these terms are in line with the published principles of both the TPR and the PPF but are still subject to formal approval by both organisations. The deal will also need to be signed off by all those party to the RAA.
Under the proposed deal Tata Steel would pay £550m into BSPS as well as provide it with a 33% stake in Tata Steel UK.
Tata Steel UK has also agreed that following the RAA it would sponsor a new scheme and would offer members of the BSPS an option to transfer into this new scheme.
The new scheme would have lower future annual increases for pensioners and deferred members than the BSPS but offer better than PPF benefits as well as significantly less risk for TSUK.
However, Tata Steel said the funding position and membership of any new Scheme would be dependent on a voluntary membership transfer exercise and noted that, as such, there was "presently no certainty with regards to the eventual existence, size, terms or form of the new scheme".
BSPS Trustee chairman Allan Johnston said the terms were good for members that have faced many months of uncertainty about their pensions.
"Tata Steel's willingness in principle to sponsor a new scheme post RAA, subject to conditions agreed with the BSPS Trustee, paves the way to allowing members to make a choice based on their personal circumstances.
"Discussions are progressing constructively and we expect to be in a position to communicate the final outcome to members soon."
The Pensions Regulator chief executive Lesley Titcomb praised the "good progress" being made in discussions but warned significant details remain to be worked out.
"There are still important details to be finalised before we are in a position to approve the RAA and we are considering these carefully in light of their impact upon the 130,000 pension scheme members and PPF levy payers.
"Pension restructurings which involve an RAA are rare, and we will only approve an RAA where stringent tests are met, so that they are not abused by employers seeking to inappropriately offload their pension liabilities."
TPR will now notify all stakeholders about the terms from which they have 28 days to approve the RAA.
The RAA will go through and become binding if all the stakeholders agree to the terms.
A PPF spokesperson confirmed the commercial details and said members of the scheme could rely on the lifeboat fund to protect them and receive PPF levels of compensation at the minimum.
Royal London director of policy Steve Webb added: "This is a much better solution than the idea of a ‘zombie' pension scheme with no sponsoring employer or a special deal done for one pension scheme, which was the government's original plan last year. The potential impact on the PPF is now much reduced and many pensioners will get a better outcome than they would have done."
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