The pension trustees behind Tata Steel UK have said the scheme can be restructured without entering the Pension Protection Fund (PPF), boosting the prospects of a rescue deal for the company.

The British Steel Pension Scheme has liabilities of ￡15bn and a deficit of as much as ￡700m by some measures, making it a serious obstacle for a rescue deal for Tata Steel UK and the Port Talbot steelworks in Wales.

Tata Steel is increasingly confident about securing the future of its UK business, which employs 11,000 people, after talks with the business secretary and the Pensions Regulator. The company plans to merge its European operations, including the UK business, with those of ThyssenKrupp, the German conglomerate. However, the deal is conditional on the British Steel Pension Scheme being restructured and the government providing financial support.

Allan Johnston, chair of the pension trustees, said the scheme could avoid falling into the PPF if the benefits for workers were modified.
Although it is well-funded compared with other schemes, with the deficit narrowing to ￡300m on some measures, Tata Steel and ThyssenKrupp are keen to keep its liabilities under control.

Johnston said the trustees accepted it “would not be realistic” for the joint venture or any buyer of Tata Steel UK to take on responsibility for funding the current and future deficit. Modifying the benefits of the scheme was a more attractive option than it entering the PPF, he added, where workers would have to accept reduced terms.

Tata Steel sources have warned it could still sell Port Talbot. The company has consistently refused to guarantee the future of the steelworks since talks began about the future of its UK business in March, and this has been used as a bargaining chip in talks with the British government.

Koushik Chatterjee, executive director of Tata Steel Europe, said the Indian conglomerate wants to make its steel business “more sustainable”.

Speaking at the sidelines of Tata Steel’s annual meeting in India, Chatterjee said talks to restructure the pension scheme were progressing, but he insisted the scheme is well-funded.

“We are discussing with various stakeholders, including the British government and other stakeholders like the government of Wales and so on,” Chatterjee said, according to the Times of India.

“There is a recognition that pension has a certain impact in a commodity business like steel, so we have to find a structural solution, which does not impact the business going forward.”

The pension trustees’ willingness to cooperate in talks to restructure the scheme will be welcomed by Tata Steel.

The potential changes to the scheme include shifting how the annual inflation-based increase in benefits is measured from the retail price index to the lower consumer price index, as well as limiting future increases in pension payments to the minimum required by law.

Johnston added: “The trustee and its advisers have provided Tata Steel, the government and the Pensions Regulator with compelling evidence of the scheme’s ability to pay modified benefits indefinitely and on a low-risk basis outside the Pension Protection Fund.

“Our investment strategy has meant that the scheme’s funding position has not been affected by recent falls in gilt yields in the same way as many other UK pension schemes, and we remain confident of the scheme’s ability to provide modified benefits as proposed on a self-sufficient basis.”