The UK government had proposed extending "special help" to the British Steel Pension Scheme (BSPS).
Tata Steel, the Indian company which took over British Steel, is currently seeking a buyer for its struggling UK operations. The proposed changes were designed to allow Tata Steel UK to be sold unburdened by its pension deficit.
The scheme, which has around 130,000 members, has around £13.3 billion of assets to approximately £14bn in liabilities, assuming that there is a sponsoring employer backing it, according to UK government figures.
Proposals considered by the UK government included changing the basis of the scheme's annual increase to the Consumer Prices Index measure of inflation, rather than the Retail Prices Index measure hard-wired into the rules. This would require government legislation, as it is not usually permitted to reduce the future benefits available under a pension scheme without the individual consent of a meaningful number of members.
The trustees of the scheme presented the proposals to the UK government as an alternative to placing the scheme into the Pension Protection Fund, the 'lifeboat' fund which provides compensation to members of defined benefit pension schemes whose employers have become insolvent and are no longer able to pay the pensions they have promised.
The report said that the plan has been dropped in part because Sajid Javid, formerly business secretary, has moved to a new role as secretary of state for communities and local government. Ministers also feared that the House of Commons would block the plan, the sources told the Financial Times.
New proposals under an offer for Tata from German company ThyssenKrupp have also affected the government's plan, the Financial Times said.