Tata Steel could pay more than £500m into its UK pension scheme as part of a deal with regulators that involves the Pension Protection Fund taking a stake in the business.

The Indian-owned company needs to find a solution to its pension scheme to secure the future of its UK operations, which employs 8,000 workers and includes the Port Talbot steelworks in south Wales. Tata Steel is trying to hive off its historic liabilities before merging its European steel operations with German company ThyssenKrupp.

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However, talks between Tata Steel and the Pensions Regulator and the Pension Protection Fund have dragged on for months and sources close to the negotiations say any deal is still a long way from being struck.

Tata has offered to make a one-off payment of £520m into the pension scheme, according to reports in India, in return for it releasing a guarantee that it holds over the company’s assets in Europe.

The scheme, which is called the British Steel pension scheme, has 130,000 members and liabilities of £15bn, making it one of the largest in the country. Trustees for the scheme warned earlier this year that the deficit could rise to between £1bn and £2bn without support from Tata Steel.



ThyssenKrupp is reluctant to take on the burden of the pension scheme as part of any merger so Tata Steel has been in talks with regulators about spinning it off or, a more likely outcome, letting it enter the PPF, a government-backed pensions lifeboat funded by a levy paid by UK pension schemes. This would lead to workers suffering a 10% cut to their benefits but can only happen if Tata Steel persuades the regulator that it is on the brink of insolvency and cannot continue to support the pension scheme.

Tata will also have to provide hundreds of millions of pounds to help fund the scheme and the PPF can demand a stake of up to 33% in Tata Steel UK so that it benefits from the future success of the business.

Pensions experts said the Pensions Regulator and the PPF, which both need to approve any settlement, were likely to seek more than the £520m offered.

John Ralfe, an independent pensions expert, said: “BHS changes everything. I am genuinely surprised they got £363m out of Sir Philip [as part of a settlement for the BHS pension scheme]. £520m is a starting point, but it is only a starting point.”

Tata Steel declined to comment, while the Pensions Regulator reiterated that there were significant issues to be resolved as part of the negotiations.

The Pensions Regulator said: “We continue to have discussions with the employer and the trustee about the future of the British Steel pension scheme. There are still significant issues to be resolved and we will consider all proposals carefully in light of their impact upon the 130,000 pension scheme members and PPF levy payers.”

The PPF said: “The Pension Protection Fund is committed to working with all parties to find a solution that is in the best interest of our levy payers and the 11m people who are protected by us, including the members of the British Steel scheme. Members of the scheme can be reassured that we are there to protect them if required.”