Tata Steel is to close its long running £15 billion defined benefit U.K. pension scheme to future accrual at the end of March.
“From April 1 2017, employees will save for their retirement through a new and competitive defined contribution scheme,” according to a BSE filing on Wednesday.
Tata Steel consulted over 4,000 employees and also held discussions with unions during the course of its consultations on the issue. Last month members of the three main unions representing the majority of Tata Steel workers voted in favour of accepting reforms to Tata Steel’s pension arrangements, in return for Tata Steel proposals to keep the blast furnace at Port Talbot open for at least five years with no compulsory redundancies and investing £1 billion over a 10-year period.
Defined benefit pension
Tata Steel will replace the defined benefit pension scheme with a defined contribution scheme with maximum contributions from the company of 10% and employees of 6%.
“Closing the pension scheme is a necessary condition but it’s only a necessary condition and that is the easy bit,” says John Ralfe, an independent pension consultant.
“The thing that has to be addressed and the other necessary condition is separating the £15 billion pound scheme from Tata Steel entirely,” he said. In addition, the eagerness of the scheme’s trustees to keep it out of the pension protection fund — which covers members of pension schemes that fall into insolvency — made things more complicated and potentially more costly for Tata Steel.
“They want it to be a self sufficient, self standing entity and that is exponentially more difficult,” he said.
The company said it continued to be “deeply engaged” with the trustees, unions and regulatory and government bodies to find a “fair and practical outcome” for members of the scheme.
“The company believes that finding a structural solution to address the risks from the pension scheme to the viability of the business is a crucial part of its ongoing U.K. transformation plan.”
The issue of Tata Steel’s pension liabilities have been a long-running headache for the business: in 2015 the company had a major stand off with unions over the future of the pension scheme, eventually backing down on plans to replace the generous defined benefit scheme at that time.
Aside from the deal struck with unions to close the scheme, Tata Steel has also taken other steps, including, agreeing to sell its speciality steel business to Sanjeev Gupta’s Liberty House Group for £100 million. It has also sold its long products business to Greybull Capital.
Last year, Tata Steel announced that it would be putting plans to sell its strip products on hold, and launched discussions with ThyssenKrupp over a merger. However, talks have dragged on, largely because of concerns about pension liabilities.
