Tata Steel may close UK pension scheme - union source

LONDON (Reuters) - Tata Steel UK is looking at closing its defined benefit pension scheme to future accruals and move membersonto a defined contribution pension instead, a union source said on Wednesday.

Britain's largest steelmaker is seeking a way to lessen the British Steel Pensions Scheme's deficit, which is one of the main stumbling blocks in talks to merge Tata Steel's European and UK assets with Germany's Thyssenkrupp. "The proposal was put to us two weeks ago. They are proposing everybody stops paying into it, that includes Tata and the members," said the source, adding that if the scheme was closed the deficit would effectively be wiped out, although there would still be obligations to existing pensioners.

BSPS trustees, who said last month the deficit had shrunk toaround 50 million pounds from around 700 million pounds earlierthis year, declined to comment on the plans. The source said Tata is proposing to move membersonto a defined contribution scheme, in which members build up a pension pot which they can use at retirement.

Defined benefit schemes typically offer higher payments to employees than defined contribution schemes.

"Tata Steel UK continues to be in active dialogue with allrelevant stakeholders to ... find a solution to ... the BritishSteel Pension Scheme (BSPS) and the risks this brings to thefuture of the Tata Steel UK business," a company spokesman said. Stephen Kinnock, the member of parliament for Aberavon in Wales, which is part of the Port Talbot area where Tata's largest steelworks is based, said:

"It is an absolute disgrace if these reports are true. For this news to leak out in the manner that it has threatens to fracture the trust upon which negotiations have been based."

Kinnock was responding to an earlier report in the Financial Times flagging the proposed pensions move.

He added that in closing the scheme, Tata was trying to avoid paying the current deficit by "exploiting a technicality".

However, Martin Hunter, pensions consultant at Punter Southall, said "closing the scheme will not be a panacea, as it is the historic liabilities which have already been built up which are the key obstacle to a deal".

(Reporting by Maytaal Angel and Carolyn Cohn; Editing by Alexander Smith)