By Maytaal Angel and Carolyn Cohn
LONDON (Reuters) - British financier Edi Truell has renewed an offer to take over Tata Steel's <TISC.NS> giant UK pension scheme in a deal that he says would allow members to keep benefits in full, though pension fund trustees rejected his proposals.
Tata Steel, Britain's largest steelmaker, is in talks with stakeholders about spinning off its British Steel Pension Scheme (BSPS) into a standalone entity and cutting benefits for all 130,000 members.
The steelmaker is under pressure to end its obligations to the 15 billion pound ($18.4 billion) scheme as it is in merger talks with Germany's Thyssenkrupp <TKAG.DE>, which is not prepared to take on Tata's UK pension obligations.
Truell told Reuters he could preserve members' benefits by plugging the pension fund's deficit through investment in high-yielding infrastructure projects instead of index-linked gilts.
An insurance consortium would take on the risk that members live longer than expected, said Truell, a pensions adviser to British Foreign Secretary Boris Johnson when he was mayor of London.
"Tata wants to separate the pension fund, wave it goodbye," Truell told Reuters in an interview.
Allan Johnston, chairman of the pension scheme's trustee board, said Truell's proposals were not viable.
"Mr Truell’s proposals were dependent on cooperation and commitments from (the British) government and Tata Steel, corporate and financial transactions with third parties, and approval by the pensions regulator. Mr Truell was unable to demonstrate that there was any reasonable prospect of these things happening," Johnston said in an emailed statement.
Tata Steel said "de-risking and de-linking the pension scheme from the UK business is crucial for the firm's survival".
The Indian-owned company has offered to pay hundreds of millions of pounds into the scheme if the trustees agree to give up the fund's claims over Tata's Dutch steel assets. The company would be required to make further payments or guarantees to separate from the scheme in full.
Truell said his plan would require Tata to pay "north of one billion pounds" in cash and guarantees for the scheme, while his foundation would put up a further 200 million pounds.
Truell would also seek to take over Tata's specialty steel business, which he would look to merge with Sheffield Forgemasters, an advanced steel and engineering group, to create a solvent employer that would back the pension scheme.
Commodity trading and industrials group Liberty House is currently in exclusive talks to buy that business for 100 million pounds.
Tata inherited the BSPS when it bought Corus, formerly state-owned British Steel, in 2007. The scheme had a deficit of 50 million pounds in October 2016, though it stood at 700 million earlier that year and could easily balloon again.
According to Truell, the scheme is paying out nearly 30 million pounds a month more than is coming in from returns on its assets, and would need to find a way to make its 15 billion pounds worth of assets grow to 23 billion, mostly over the next 15 years, to meet its liabilities.
Tata Steel has offered to invest in its British business and guarantee the jobs of 11,000 UK employees for five years if they vote in favor of closing the pension scheme to future accrual and of moving on to a less generous scheme.
Truell, who last year bid for Tata's entire British business including its flagship Port Talbot steelworks in Wales, said his plan would also involve closing the pension scheme to future accrual.
Martin Hunter, principal at pension consultants Punter Southall, said the trustees would probably have had questions about Truell's plan to invest in riskier infrastructure and about whether the specialty steel business was a big enough sponsoring employer.
But he added: "If members are being asked to accept a deal from Tata which involves a reduction to benefits, the existence of an alternative offer which does not involve any immediate cuts to benefits could make discussions with the unions more difficult."
(Additional reporting by Abinaya Vijayaraghavan in Bengaluru; Editing by Veronica Brown and Adrian Croft)