By Maytaal Angel and Carolyn Cohn
LONDON (Reuters) - Tata Steel UK <TISC.NS> on Wednesday offered British unions a deal guaranteeing jobs and investment in return for cutbacks to pensions, moving the company a step closer to merging its European assets with Germany's Thyssenkrupp <TKAG.DE>.
Britain's largest steelmaker offered to keep production at the country's largest steel plant in Port Talbot, Wales, going for at least five years, with a commitment to try to avoid any compulsory redundancies for five years, steel unions said.
It also offered to invest 1 billion pounds in its UK business over the next 10 years.
In return however, Tata, which employs some 4,000 people at the Welsh plant and 11,000 in the UK as a whole, wants to close employees' costly final salary pension scheme to future accruals and replace it with a defined contribution scheme.
Unions will ballot on the plan in January next year.
They are concerned that should they agree to let Tata close the current pension scheme, the company will look to spin it off into a standalone entity that could eventually fall into the Pension Protection Fund (PPF) if necessary.
The PPF is a life-boat for failing schemes that would cut benefits by 10 percent for employees below retirement age.
"These significant commitments on production, jobs and investment are welcome, however the move to close the British Steel Pension Scheme will clearly be of serious concern to all members," said the Community union in a statement.
The union noted, however, that Tata was now offering to contribute up to 10 percent to a new pension scheme for workers, versus a previous offer of 3 percent.
Still worries over the company's pensions and merger plan remain.
Industrial group Thyssenkrupp, which has long been seeking a solution for its ailing steel business, has insisted it is not prepared to take on Tata's pension liabilities in the event of a merger.
Moreover, the company has made clear that its primary aim in merging with Tata is to combat overcapacity in the steel sector.
(Additional reporting by Carolyn Cohn and Tom Kaeckenhoff; editing by Simon Jessop and David Evans)