PORT TALBOT, WALES - JANUARY 18: Workers drive a train inside the Tata steelworks on January 18, 2016 in Port Talbot, Wales. Tata Steel has confirmed today that it plans to cut 1,050 jobs in the UK, including 750 at Port Talbot which is the UK's biggest steelworks. (Photo by Matt Cardy/Getty Images)
Tata Steel's plant at Port Talbot in South Wales © Getty

Tata Steel’s pension scheme is a “noose round its neck” that will tip the company into administration and put off buyers, a leading City adviser has said.

The company, which was put up for sale at the end of last month, has a £15bn commitment to 135,000 current and former steelworkers that no prospective buyer wants to take on, said Cardano, a pensions consultancy.

Kerrin Rosenberg, chief executive, said: “The pensions system puts British companies at a competitive disadvantage. There is a noose round the neck of corporates. If we follow the rules the only route is to put Tata Steel into insolvency and the fund into the Pension Protection Fund.”

The PPF takes on defined benefit schemes that sponsor companies can no longer afford but pensioners suffer an average 20 per cent cut in benefits.

That could cause hardship for the 85,000 retired steelworkers and 45,000 still working. Just 15,000 still contribute; the other 30,000 are deferred members until they retire.

The government could nationalise the scheme, as it did with Royal Mail, but that could cost the taxpayer billions and breach state aid rules.

Companies that have bought assets from Tata have not taken on pension liabilities. Liberty House, the commodities broker that is the only declared bidder for the sprawling Port Talbot plant, has said it would not sponsor the pension scheme. Greybull, which is close to buying the Scunthorpe-based long products division for £1, set up another, less generous scheme. That deal has carved out around a quarter of Tata’s revenues and a third of its workforce.

Other pensions experts agreed. John Ralfe, an independent consultant, said: “No buyer of the individual Tata Steel plants will take on any pension liabilities, which will remain with Tata Steel UK. Once all the plants are sold or mothballed, there will be no underlying business to support the £15bn British Steel pension scheme and it looks certain to end up in the Pension Protection Fund.”

Tata Steel UK said it was “premature” to talk about the future of the scheme. It declined to confirm whether it would pay in a promised £125m over the next two years to help plug a £485m deficit.

Koushik Chatterjee, group executive director, said this week the UK company would continue to be responsible for the scheme.

The Pensions Regulator has the power to pursue Tata Steel Europe, which owns a plant in the Netherlands, or even in India if it believes it underfunded pensions. But it would have to prove a connection between the entities and that they had extracted assets from the UK.

The regulator is already scrutinising the sale by Sir Philip Green, the retailer of BHS, for £1. Sir Philip has reportedly offered £40m cash towards plugging an estimated £475m pension deficit. It said it could not comment on specific cases.

Alan Rubenstein, chief executive of the PPF, said: “We are aware of the situation and if Tata is no longer able to fund the British Steel pension scheme we will work with them and the Pensions Regulator to find a solution that is in the best interest of our levy payers and . . . members of the British Steel pension scheme.”

Community, the steelworkers’ trade union, said it would fight to ensure members did not lose out. “We have fought tirelessly for this pension for decades and will continue to do so to get the best deal for our members.”

Mr Rosenberg said the system should be reformed to allow more flexibility. Options could include allowing companies to reduce benefits slightly or treating pension fund members as senior creditors in an administration. Cardano advises pension funds with assets of more than £120bn and 1.3m members.

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