Pension row to hit Tata Steel Europe's production by 60%

6 May 2015

Tata Steel may see near 60% of its 17.4 mt production capacity in Europe getting shut if the ballot called by the employees unions of Tata Steel UK, that starts today, results in favour of strike action.

To put it in perspective the combined production capacity of 10.2 mt at 3 locations in the UK is larger than company’s 9.7 mt capacity at Jamshedpur in India. The unions at UK are locked in a dispute with the company about its proposal to change their British Steel Pension Scheme (BSPS). Should the ballot result in a vote to strike, it would be the biggest action in the UK steel sector in three decades.

"We started discussions with our UK unions last year about the need to modify our final salary pension scheme because of the scheme's increasing deficit. The unsustainable growth in the deficit is mainly due to people living longer and low returns in the financial markets,” said a company spokesperson.

As per a union statement BSPS had 143,000 members as of December with 17,004 employee members and 91, 264 as pensioners. The company has proposed to change the pension scheme from defined benefit scheme- which guarantees a pension based on earning and length of service – to defined contribution.  These schemes are generally less generous and the size of the pension pot depends on the success of the investments the money is put into. Due to low return in the financial markets this is expected to bring down employees pension significantly.

After failing to reach agreement with the unions on proposed changes to the BSPS, Tata Steel began a 60-day statutory consultation with scheme members on a proposal to close the scheme to future accruals.

The unions claim that under the changes, steelworkers who opted to retire at 60 years would face a 25% cut in their pension entitlements. On 27 April employees unions at Tata Steel’s UK subsidiary gave legal notice about their intention to ballot their members from 6 May to 29 May for industrial action in the ongoing dispute over pensions.

This may lead to about 17,000 members of BSPS going on strike. The unions have urged their members to vote in favour of strike action and action short of strike action.

Tata Steel UK is not the only company that is facing threat of a strike from its employees due proposed changes in pension scheme. UK retailer Tesco has also proposed to replace its defined benefit pension scheme with a defined contribution scheme. Its retail unions have threatened to fight too.

"Tata Steel remains open to unconditional talks with the unions to find resolutions to the very substantial challenges facing the pension scheme," said the spokesperson. Tata Steel Europe had a turnover of 8.83 billion pound in 2013-14 with a EBITDA of 314 million pound. This includes operations from both UK and Netherland. The company does not disclose its financial of individual plants. Its financial result for 2014-15 is awaited this month.