UK - BT will consider reopening its £26.6bn final salary scheme if it fails to attract more savings into its money purchase plan.
And NAPF chairman Terry Faulkner believes many other companies will have to do likewise unless they boost the pension pots of defined contribution members.
He said that if retiring workers found their pension savings were inadequate, the ensuing damage from bad coverage in the media could be enough for firms to reopen their defined benefit schemes.
BT Pension Scheme secretary Colin Hartridge-Price said it was only a matter of time before “we come a full circle again” and firms start to reopen their schemes – including BT.
Hartridge-Price said: “Those of us who have been around long enough have seen the move away from career average into final salary when we had high inflation. Unless employees start putting decent amounts of money into DC, we will see that pattern occurring when people retire on wholly inadequate pensions.”
BT’s DC plan offers members matched contributions up to 10% but Hartridge-Price said members were not saving enough to generate sufficient levels of retirement income. The average employee contribution is currently 5.1% – barely above the minimum contribution level of 4%.
He said BT would consider reopening its DB scheme if the need arose. “Anything is possible, and it wouldn’t be difficult to reopen the DB scheme. But there would have to be a problem with the DC scheme for the possibility of the DB scheme being reopened,” he added.
Faulkner is adamant that DB schemes will return “but not in the same form”. He said: “The traditional 1/60th final salary scheme will be restricted to large corporates and the public sector. But other forms of DB will make a return.”
But Mercer Human Resource Consulting worldwide partner Dick Strattan disagreed and argued that instead of arguing over the merits of DB or DC designs, the critical issue was increasing contributions to schemes.
He said: “There will be pressure on employers to offer proper pensions, which cost 15% of pay, 20% of pay or something. One way or another, DB or DC, it costs a lot of money.”
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