Sir Vince Cable said it would be a better option than taking a public stake in the industry.
His comments come after the firm announced on Tuesday it planned to sell its loss-making UK operation.
He said such a move could change the firm's economics "substantially".
Sir Vince described the liabilities of the pension fund as a "massive deterrent" for prospective buyers.
He told BBC Radio Wales: "It would be more sensible if they were to take ownership of the pension fund rather than run the company which governments aren't very good at.
"This could be a way that the government could provide a real game-changer, and change the economics of it substantially."
He also said he had been taken aback by the UK government's handling of the crisis, claiming ministers were not prepared for the announcement in Mumbai.
He also described the UK government's objections to an increase in the EU tariff for Chinese steel as "bizarre".
Business Secretary Sajid Javid is to meet Port Talbot steelworkers on Friday to insist the government is "on their side", while the UK government has said it is doing all it can to help.
The UK government should take ownership of Tata Steel's pension fund to encourage a buyer to come forward, the UK's former business secretary has said.