Tata’s plan to hive off £14bn pension ‘will not succeed’

TATA Steel’s offer to pay ‘hundreds of millions’ of pounds into its pension scheme in return for the release of the fund’s claim over the firm’s key Dutch plant is unlikely to clear the way for the company to hive off the scheme, experts warn.

The Tata Group is looking at merging its European steel operations, including Tata Steel UK, with German steelmaker ThyssenKrupp.

But Tata says it needs to separate the 130,000-member British Steel Pension Scheme from the business for the plan to go ahead.

Failure to do so, claims Tata, would force its British steel-making operations into insolvency.

The company insists it is very unlikely that a merger partner or buyer would be interested in acquiring any or all of Tata Steel UK with the liabilities of the pension scheme still attached.

The scheme is relatively wellfunded but only 14,000 members are still contributing to it.

Far larger than Tata Steel, the British Steel Pension Scheme has £13.3 billion of assets and £14 billion of liabilities. Tata – with the support of the Government and trade unions – wants to shut the final salary pension scheme to new members and cut back on future pension increases.

It would use the £2.5billion savings to allow the scheme to run on a standalone basis, without an employer ‘sponsor’.

A sponsoring employer contributes to the scheme and is responsible for ensuring the fund has enough money to pay out to members.

In return, Tata has committed to continuing production at its giant Port Talbot steelworks in South Wales, with guarantees that the blast furnaces would remain open for five years with £1 billion of investment. Unions are balloting their members at the end of this month on the proposals.

But independent pensions expert John Ralfe was critical of the plan to hive off the pension scheme and of the proposed change to the guaran- tee on the Ijmuiden plant in the Netherlands. He said: ‘The British Steel Pension Scheme Trustees are going round in circles wasting lots of time and money.

‘There are strict legal criteria for a company abandoning its pension scheme which Tata UK doesn’t meet. And there is no legal mechanism for a so-called zombie scheme with no employer standing behind it.’

He added: ‘As for the Ijmuiden guarantee, which gives very important security, I would have expected the details to be disclosed in the actuarial valuation and the Scheme annual report but it is entirely absent.’

Tata put its UK business up for sale last March when it said it was losing £1 million a day and it claimed to have lost £2billion over the last five years.

However, it is now understood to be making a small profit after the price of steel rose and the firm sold parts of its business.

The British Steel Pension Scheme declined to comment. Tata said the negotiations were ongoing.