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Tata Steel is to shut its £15bn UK retirement fund at the end of this month, in a move that could help safeguard a future for Britain’s largest steelmaker.
The Indian steel giant said on Tuesday that following a consultation with its UK workforce, it would close the final salary scheme to further accrual, after it became a serious financial drag on its British operations.
Last month, thousands of Tata’s UK steelworkers voted in favour of the proposal, which forms part of a rescue plan to put the troubled business on a sounder footing.
In return, Tata has pledged to guarantee production at the giant Port Talbot plant in south Wales until 2021, keeping both its blast furnaces lit, as well as to invest £1bn into the business.
Britain’s steel industry was thrown into turmoil almost a year ago when Tata announced it wanted to sell up after years of losses. It subsequently changed tack and is in talks with ThyssenKrupp of Germany over a merger of their European steel operations.
However, Tata’s UK rescue deal is also conditional on detaching the British Steel Pension Scheme from the company. Ensuring the adequate funding of frozen pension funds normally remain the responsibility of an employer.
The company said it was engaged with the pension scheme trustee, trade unions, regulators and the government to “identify the best prospects for the future sustainability of its UK operations and a fair and practical outcome for the members of the British Steel Pension Scheme.”
It added: “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 UK transformation plan.”
In place of the final salary scheme, employees will be offered a less-generous – though today commonplace – ‘defined contribution’ arrangement to save for their retirements.