(Adds details, comment from Thyssenkrupp, Tata Steel, Pension Protection Fund)
Aug 11 (Reuters) - India's Tata Steel Ltd has received regulatory approval for a deal to cut its UK pension scheme liabilities, it said on Friday, paving the way for a possible merger between its British and European steel businesses and those of Germany's Thyssenkrupp.
The pensions deal "represents the best possible structural outcome for the members of the British Steel Pension Scheme and for the Tata Steel UK business," Koushik Chatterjee, Tata Steel's group executive director, said.
The net financial impact of the deal would be reflected in Tata Steel's second-quarter financial results, he said.
The fate of Tata's British businesses, including the UK's largest steelworks, at Port Talbot in Wales, has been uncertain since Tata Steel said more than a year ago it planned to sell the British assets following heavy losses.
Without a deal on the pension scheme, Tata Steel UK had warned it could face insolvency due to the size of the pension fund's deficit.
The pension scheme's 15 billion pounds ($19.37 billion) of liabilities also appeared to be the main obstacle in the merger talks with Thyssenkrupp, which has been opposed to taking them on.
Thyssenkrupp said on Friday it would still not rush into any merger decisions. The prospect of a merger has also met with opposition from Thyssenkrupp's German labour unions.
"Thyssenkrupp had already in the past pointed out that any (pensions) agreement would need to be closely examined," a spokesman for the German steel-to-elevators group said.
"We will now take the time necessary for that examination.
Under the terms of the deal with The Pensions Regulator, Tata Steel will pay 550 million pounds ($713 million) into the British Steel Pension Scheme and will also give one of Britain's largest final salary pension schemes a 33 percent equity stake in Tata Steel UK Ltd.
The terms are in line with those outlined by Tata Steel earlier this year.
When the new agreement comes into effect, the UK pension scheme will be separated from Tata Steel UK and a number of affiliates, the company said. (http://bit.ly/2vt3uAD)
The deal makes the 130,000 members of the scheme automatically eligible to join the Pension Protection Fund (PPF), an industry-funded lifeboat for ailing schemes, which offers lower guaranteed benefits than the existing terms.
However, Tata Steel plans to sponsor a new pension scheme with lower benefits than the old scheme but better ones than the PPF.
That scheme could take some months to set up but should not stand in the way of any tie-up between Tata and Thyssenkrupp, pension industry sources say.
The British Steel Pension Scheme said it would write to its members in the next few weeks about the new scheme.
"Wed encourage members to consider the details and their position carefully and decide whether the new scheme or the PPF is the better option for them," a PPF spokesman said. ($1 = 0.7711 pounds) (Reporting by Samantha Kareen Nair in Bengaluru, Carolyn Cohn in London, Christoph Steitz in Frankfurt and Tom Kaeckenhoff in Duesseldorf; Editing by Greg Mahlich)