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Government plans to ring fence the British Steel pension fund to make Tata Steel UK more attractive to prospective buyers have met with opposition from the Treasury, according to reports.

Yesterday it emerged that the Government is considering ring fencing the £15bn, which is estimated to be £485m in deficit, in a move that would reduce its long-term liability by £2.5bn.

But today the Financial Times is reporting that the Chancellor of the Exchequer George Osborne, along with pensions minister Ros Altmann, are worried about the impact on other pension schemes also in deficit.

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Mr Altmann's boss at the Department for Work and Pensions is Preseli Pembrokeshire MP Steve Crabb, who has many constituents that work in Tata steelwork operations at nearby Trostre and Port Talbot.

Javid in discussions

Business Secretary Sajid Javid is reported to be in discussions with unions and pension trustees about changing the index of the steel pension scheme's accrual rate to the slower-rising consumer price index instead of the retail price index.

This proposal is similar to changes that were made to public sector pensions in 2010.

However, the Pensions Act 1995 requires an actuary to certify equivalence between old and new terms if such a change is to take place.

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Concern about precedent

This requirement would need to be changed by a statutory instrument, which could set a precedent for other pension schemes.

More than 4,800 such schemes are in the red with a combined deficit of £309bn, according to reports.

Pensions expert John Ralfe, who is advising the select committee on work and pensions about the BHS pension fund, has written to committee chairman Frank Field about the steel pension scheme.

He wrote: “If the legal changes were successful it would drive a coach and horses through the fundamental principle that pension benefits, once earned, cannot then be reduced."

Union reaction

The Unite union, said: “We would warn rogue employers against using this unique set of circumstances as an opportunity to dodge their pension responsibilities and leave their own employees in the lurch.”

As part of Mr Javid's plan Tata would have to pay several hundred million pounds to ringfence the fund, taking it out of the hands of the Indian company or the potential new buyer.

It is being proposed as a way to prevent the pension scheme falling into the state safety net for failed pensions, the Pension Protection Fund.

This could result in a haircut of more than 10% for members below retirement age.

Other options

A possible way round this would be to split the pension fund into separate schemes for old and future service.

This took place during the Royal Mail privatisation in 2012 when the past service of Royal Mail workers was ring fenced in a Government-backed statutory scheme, while future service went into a separate private scheme.