Tata Steel set to reduce pension deficit to half if UK workers vote in favour
9 July 2015
Tata Steel's fate hangs in the balance till its UK workers announce the result of the ballot on modified pension scheme, expected on July 15. If this pension scheme gets a nod from the U.K. workers, Tata Steel tells ET NOW that the pension deficit will be reduced by "£900 mn" from around £2 bn. Tata Steel said, "The modifications will be reflected on finalisation of the triennial valuation of the pension scheme as at March 31 2014."
Tata Steel has proposed a few modifications to the current British Steel Pension Scheme applicable to its 17000 workers in the UK-based steel mills. The steel major has a two-pronged strategy, "The introduction of the pensionable earnings growth cap and the move to cost-neutral early retirement terms are the key factors that will address the deficit." Tata Steel said.
ET NOW is in possesion of the pension scheme document which is being deliberated upon by the UK workers, when Tata Steel was contacted for the same, the company shared the key features pf the pension package with ET NOW:
> Existing members of the UK final salary pension scheme will continue to accrue future service in the scheme, though with modifications
> Employees aged 60 and over will still be able to retire early, subject to the introduction of reductions to reflect the cost of early payment, phased in over several years
> Pensionable earnings growth in the final salary scheme will be capped at 1.75% per annum
> Pensionable earnings above this cap will be pensionable on a defined contribution basis
This could come as a big relief to the steel major for which the pension liability is growing at a faster rate than the return on investments it gets for its pension plan assets, widening the deficit. Tata Steel said, "Notwithstanding the projected deficit identified by the current valuation, the scheme's assets have risen strongly in recent years - at about £14 billion they are around 50% higher than in 2009."
Currently, Tata Steel's UK workers are carrying out a voting process to decide on the modified pension scheme. Tata Steel told ET NOW, "A new round of roadshows has started in which the modifications are being explained to employees. Employees who are members of unions (about 12,500 of the total 17,000 UK employees) are being balloted to approve the new package."
Earlier, Tata Steel's UK-based workers' unions had threatened to go on strike if Tata Steel did not modify their earlier proposal. The present pension scheme had received a positive response from the leading trade unions and had been put to vote. ET NOW learns that the response to Tata Steel's pension scheme may be favourable, final decision is expected on July 15.