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Tata Steel UK’s proposal to restructure the British Steel Pension Scheme agreed by TPR

Ref: PN17-48
Friday 11 August 2017

The Pensions Regulator (TPR) has given initial approval to a proposal from Tata Steel UK (TSUK) to restructure the British Steel Pension Scheme (BSPS) and prevent the company becoming insolvent.

The proposal brings greater certainty for around 130,000 scheme members, secures a significant cash contribution to the BSPS and minimises the impact on the Pension Protection Fund (PPF).

This restructuring will be done through a regulated apportionment arrangement (RAA). The BSPS will receive £550 million from the Tata Steel Group, significantly more than it would receive in insolvency, and a 33% equity stake in TSUK.

Following completion of the RAA, the scheme will offer members the choice to either transfer to a new scheme (if it meets certain qualifying conditions) which will be sponsored by TSUK, or remain in the existing scheme which will transfer to the PPF.

Lesley Titcomb, Chief Executive of TPR, said: “We do not agree to these types of arrangements lightly but after several months of robust negotiations in this case, we believe that it is the best possible outcome for everyone involved in what is a very difficult situation.

“TPR is willing to work closely and constructively with employers who face real challenges in meeting their pension obligations due to difficult trading conditions. Our focus will always be on protecting members and the PPF. We have worked closely with the scheme trustees and the Pension Protection Fund to maximise the value received by the scheme.

“This proposal brings greater certainty for pension scheme members and unlocks the possibility of restructuring the company, which in turn could lead to preserving jobs.

“We are pleased that the employer has also agreed to sponsor a new scheme which has the potential to deliver higher benefits than PPF levels.”

TPR only granted clearance to the proposal after ensuring it met strict criteria designed to stop employers abusing the RAA mechanism. This included that the business would have become insolvent within the next 12 months if the RAA had not taken place, which would have left BSPS without its sponsoring employer.

In order to continue to trade, TSUK required ongoing funding from the Tata Steel Group, which it was not willing to provide until funding challenges for the existing scheme were resolved.

Whilst Tata Steel Limited indirectly owns TSUK, it has no legal obligation to fund the BSPS or to continue to provide support to TSUK because it is not the statutory employer.

TSUK and BSPS trustees have initially agreed the plan, which includes the RAA. Formal approval to the RAA is expected to be granted by TPR in 28 days’ time, provided the decision is not referred to the Upper Tribunal by any of the parties who are directly affected* by this decision. In addition, TPR has granted clearance** that we will not use our anti-avoidance powers.

Once the RAA takes effect, the BSPS will be separated from TSUK. This will be followed by an offer to members to transfer to a successor scheme sponsored by TSUK before the BSPS enters the PPF. The ability to transfer to the successor scheme will be conditional on that scheme satisfying certain qualifying conditions, including its funding level and size.

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. Each member’s situation is different and depends on their personal circumstances and retirement plans.

The BSPS trustees will be communicating with scheme members in the next few weeks to explain member options and expected next steps. In the meantime, members should contact the BSPS trustees with any queries.

RAAs continue to be rare. If this RAA gains formal approval, it will only be the second that TPR has approved this year and the third in the last two years.

Editor's notes

  1. * Directly affected parties are the applicants, the trustees and the PPF.
  2. The criteria that must be taken into account when considering whether to accept an RAA application are:
    • whether insolvency of the employer would be otherwise inevitable or whether there could be other solutions which would avoid insolvency
    • whether the scheme might receive more from an insolvency
    • whether a better outcome might be attained for the scheme by other means including the use of our powers (for example, our anti-avoidance powers) where relevant
    • the position of the remainder of the employer group
    • whether the scheme is being treated equitably compared to other creditors
  3. For more information about RAAs, see our media guide (PDF, 248kb, 2 pages).
  4. In June TPR agreed an RAA with Hoover Ltd and in July 2016 with the Halcrow Group Ltd.
  5. For detailed guidance of the RAA approval process see the RAAs and employer insolvency statement (PDF, 57kb, 3 pages).
  6. Under the RAA, the employer can now continue to operate its business and the existing scheme will receive a lump sum payment which is higher than it would have received from insolvency.
  7. ** Clearance is the voluntary process for obtaining a clearance statement from TPR. A clearance statement is not approval of a transaction such as an acquisition or merger; rather it gives assurance that we will not use our anti-avoidance powers in relation to that transaction.
  8. For more details of the options being offered to scheme members please contact andrew.adie@newgatecomms.com or alistair.kellie@newgatecomms.com at the BSPS.
  9. The British Steel Pension Scheme has around 130,000 members, 80,000 of which are pensioners.
  10. TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).

Press contacts

David Morley 01273 662091

Matt Adams 01273 662086

pressoffice@thepensionsregulator.gov.uk

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