Tata Steel (NSE:TATASTEEL) has offered to pay £550 million into its pension scheme, as part of a move to avoid the UK arm of its businesses going bust.
The Indian-owned company has announced a plan to pay into the now closed scheme, alongside offering a the British Steel scheme a 33 percent stake of its UK businesses.
Trade unions have cautiously welcomed the plan. In a joint statement, Community, United and the GMB unions commented:
“This is the commitment Tata has given to the workforce, and the trade unions will hold them to the promises they have made.”
They continued: “This announcement is a stepping stone in the process to secure BSPS members’ benefits in a new, modified scheme sponsored by Tata Steel UK.”
If the cash injection be completed in June, as analysts have anticipated, it would put to rest the long-standing situation over its pensions scheme.
Resolving the ongoing dispute would also bring the company a step closer to completing the proposed merger of its European steel operations with German competitor ThyssenKrupp (ETR:TKA).
Tata Steel acquired the £15 billion British Steel Pension scheme back in 2007, which has since continued to weigh upon company profits.
On Tuesday, the company announced a net loss of Rs12 billion (£145 million) for the first three months of 2017, as a result of the ongoing issue. Nevertheless profits were propped up elsewhere by high demand for its European operations, with company earnings more than tripling.
The newly proposed deal would see the creation of a new scheme, and would be initially financially propped up by Tata Steel UK.
However, in turn it would mean lower annual increases in future payouts for pensioners, which would see an “improved funding position which would pose significantly less risk” for the company.
Tata has said the deal is subject to approval by the Pensions Regulator and the PPF.
Shares in the company are currently up 8.07 percent as of 11.11AM GMT.