UK - Banking and insurance unions are warning that firms could face legal action if they try to close their final salary schemes completely.
The warning comes as industry experts predict that one of the great bastion's of final salary provision, the financial services sector, looks set to crumble.
Experts claim only a handful of DB schemes remain in the banking sector after the £1.5bn Abbey National Pension Fund closed to new members while the £800m Nationwide Building Society Pension Fund has moved to a career averaging scheme.
And union leaders have warned that the £249m Axa Insurance pension fund and the £333m Co-operative Bank pension scheme are also in danger of closure.
The move was attacked by the financial workers’ union Unifi, which warned that it would raise issues of a breach of contract with any banks that closed their schemes entirely.
Spokesman Dai Davies said: “Banks’ actual contributions to their pension funds is minimal at the present. So closing their schemes is not a cut cutting exercise, it is just following a trend.”
From next month, new employees at Abbey National will join a staff stakeholder scheme. There will be no salary cap with a sliding scale of contributions according to age.
Only those in the 56-plus age bracket will receive the same level of contributions as under the old scheme.
Nationwide has moved to a career averaging option for new members after the latest valuation showed that contributions needed to be increased to 19.1% to offset a deficit of £16m.
Employees in the new scheme will contribute 5% with Nationwide contributing 12.6% – the amount the firm was contributing into the DB scheme prior to the valuation.
Nationwide will continue to pay the higher contribution level for existing members and pensions manager Michael Fairlam said the society was “highly unlikely” to close the scheme to existing members in the future.
Fairlam said: “While we were quite happy to continue paying what we were paying before valuation we didn’t want to see our pension costs increase much more.”
Bacon & Woodrow, which acted as actuary for the last valuation, is about to start an asset liability study, over the next two to three months.
Fairlam said: “There may be some rebalancing of the portfolio but I wouldn’t envisage a wholesale selling of equities for bonds.”
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