UK - Green Paper proposals to scrap final salary vesting periods are prompting firms to rethink scheme rules.
Television company Channel 4 has introduced a two-year waiting period on its final-salary scheme – the latest in a series of high-profile firms to impose restrictions.
The changes follow the Green Paper’s suggestion to scrap the current two-year vesting period in favour of an immediate vesting regime – a move which actuaries claim will create additional work for schemes.
Channel 4’s compensation and benefits manager Sue Utting said: “We are trying to prevent ourselves from giving deferred pensions to people with less than two years of service because it is an administration nightmare.
“The idea of someone with a six-month deferred pension, and the administration and costs that are then ongoing, is plainly ludicrous.”
NAPF benefits director David Astley said immediate vesting would create “additional work” for schemes and many were looking at amending scheme rules to avoid this administrative burden.
He says that in addition to introducing two-year waiting periods – which effectively replace the current vesting period – schemes are also considering a minimum age requirement, say 25, before staff are allowed to join a final salary scheme.
He explained that younger workers were more likely to “job-hop” so it made less sense to grant them immediate access to a pension scheme under a system of immediate vesting.
Mercer European partner John Porteous agreed.
He believes companies will look to introduce an alternative to final salary schemes for new employees if immediate vesting is introduced.
And he said the quality of the alternative scheme would “hinge on whether the company is prepared to put money in”.
In March it was reported that newspaper distributor John Menzies had followed Boots and John Lewis by imposing a five-year waiting period for staff to join its final salary scheme.
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