Tata Steel’s hunt for a buyer to save its British business could be hampered by the firm’s £15bn pension scheme, complicating rescue efforts that David Cameron admittedhad “no guarantees of success”.
The business, which employs 15,000 people at Port Talbot and other sites around the country, is saddled with more than 130,000 savers who are entitled to a pension.
Tata has already pared back the deficit in the steel pension scheme from £2bn to £485m by last March, and has agreed with the trustees to eliminate the shortfall entirely by 2026.
However, a change of ownership could require a major contribution to satisfy the UK pension regulators that savers would be safeguarded.
John Ralfe, an independent pension expert, has estimated that Tata’s Indian parent company could sell on its pension liabilities to a specialist insurer for £2bn, or agree to keep funding the scheme for numerous decades until its members have died. The company has been silent on its plans.
“If Tata Mumbai does not financially support BSPS, either willingly or after legal action [from the Pensions Regulator], it seems inevitable that the 130,000 pension scheme members will lose out and end up with a smaller pension than they have been promised,” he said.
The Pension Protection Fund, a state-backed lifeboat for insolvent companies’ pensions, is understood to be watching the situation closely. It can intervene and take over a scheme if a firm becomes insolvent or changes owners, funded by a yearly levy on large pension schemes.
Tata Steel as a whole has net debts of around $11bn. Ratings agency Moody’s said that Tata’s position would be improved by severing the UK business, although its overall rating would not alter.
“Tata Steel Limited’s planned restructuring of its UK businesses is credit positive as it reduces some of the negative pressure on the company’s operating performance,” said lead analyst Kaustubh Chaubal.
Source: The Telegraph