Tata Steel’s fate dependent on votes of its UK workers

Tata Steel is waiting for July 15 as its 17,000 workers in Britain will announce the result of the ballot on modified pension scheme on this date.

The steel major told ET NOW that the pension deficit will be reduced by "£900 million" from around £2 billionn, if this pension scheme gets the approval of the U.K. workers.

It has come with a few modifications to the current British Steel Pension Scheme applicable to its workers in the UK-based steel mills. Tata Steel said: "The modifications will be reflected on finalisation of the triennial valuation of the pension scheme as at March 31 2014."

As per an ET report, 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," it said.

ET NOW is in possession of the scheme document which is being deliberated upon by the UK workers. When the company was contacted for the same, it shared the key features of the scheme:

· 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 be a big relief to the company 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.

The firm 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."

Tata Steel's UK workers will vote to decide on the modified pension scheme. The company told ET NOW: "A new round of roadshows has started in which the modifications are being explained to employees."

The present pension scheme had received a positive response from the leading trade unions and had been put to vote.

(Image: Reuters)