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LONDON (Reuters) - Tata Steel has agreed the key commercial terms of a deal to cut benefits and improve the funding position of its British pension scheme, the Indian company said on Tuesday.
The pension scheme was a major stumbling block in talks to merge Tata Steel's British and European steel assets with those of Thyssenkrupp, because the German company was opposed to taking on Tata's 15 billion pounds in UK pension liabilities.
The deal, agreed with the scheme's trustees, will see Tata plough 550 million pounds into the final salary British Steel Pension Scheme (BSPS). It is subject to formal approval by The Pensions Regulator, but Tata said it expected to get approval shortly.
Tata has also agreed, as part of the deal, to sponsor a new pension scheme, which will have lower benefits than those of the original scheme, and to give the BSPS a 33 percent equity stake in its UK business.
With benefit cuts in place, the new scheme will pose less of a risk to the company, Tata said.
The British Steel Pension Scheme is one of Britain's largest final salary schemes with 130,000 members.
The pension scheme's members who do not agree to move to the new scheme will automatically transfer to the Pension Protection Fund (PPF), which said all the scheme's members, including those in the new scheme, are guaranteed PPF compensation levels.
The PPF is a lifeboat for pension schemes in Britain that run into trouble.
Reporting by Maytaal Angel and Carolyn Cohn. Editing by Jane Merriman