UK - Trade union anger over the closure of final salary pension schemes could be quelled if firms took a "more flexible" approach, a pension law specialist claims.
Coventry-based Reed Smith argues that union-led industrial action – such as the strikes at chemical giant Rhodia over the closure of its DB scheme to new members – can be prevented through an affordable “third way” hybrid solution.
UK head of pensions Michael Calvert said: “Rhodia is not the first employer to risk industrial action when attempting to close its defined benefit scheme.
“Other employers have started down this road, then backed off when the level of unrest became clear, adopting instead one of the alternatives for reducing the cost of their DB schemes short of closure.”
He said “sharing the pain” had been one common alternative, with part of the increased cost of the scheme being met by employees through increasing the rate of their contributions.
Calvert pointed to the Barclays Bank hybrid scheme as an example of the “sharing the pain” option, where a minimum return on contributions is effectively guaranteed.
Another option to be considered is an accrual rate reduction from 1/60th of final salary to 1/80th.
“This would still give a pension based on final salary, but worth 25% less after 30 years of service,” he added.
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