Money News: Gone for a Burton: final salary schemes suffer fresh blows

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Another cloud appeared on the dark horizon for final salary pensions last week as two big UK employers revealed changes to their schemes.

Under a proposed new plan at the Co-op, the retailer and ethical financial services group, staff pensions will be based on an average salary over the course of a career instead of on earnings in the last year of work.

However, the changes will affect only pension benefits saved after April 2006; those already accrued through the existing scheme will stay linked to final salary calculations.

At Arcadia, whose high- street chains include Burton and Topshop, staff will now have to work longer and pay more into their final salary schemes to keep their benefits.

The companies are the latest to dilute pension deals for staff. Last month, Rentokil Initial became the first FTSE 100 group to announce the closure of its final salary scheme in favour of a money purchase plan.

Most final salary schemes in Britain are now closed to new members, and the cost-cutting emphasis has moved on to current members.

The cost of funding these schemes, in the light of increased life expectancy and predictions of weaker stock market performance, is behind the changes.

A National Association of Pension Funds survey recently suggested that a quarter of companies anticipated closing their final salary scheme in the near future.

Equity release: 'Lifestyle dream' or nightmare?

Homeowners considering equity-release schemes to unlock cash from their property are in danger of being sold a "lifestyle dream that can turn into a financial nightmare", according to consumer group Which?.

The schemes can leave you or your family with little equity in your property when you move into care or die. They also carry rigid terms and conditions, a Which? report warned last week.

Equity release "should be used only as a last resort", the authors concluded.

The Financial Services Authority is already monitoring the sale of these high-risk products, which let you sell part of your house or raise a new loan against it - usually at a big discount to the real value - while continuing to live there.

At present, only one form of equity release, the "lifetime mortgage", is regulated. A second type of scheme, known as "home reversion", is not - although there are plans to do so this year.

Elderly homeowners seeking extra income in retirement should consider moving to a smaller home and banking the cash difference, said Which?

The consumer group also lambasted the way in which equity-release schemes are often marketed, picking on Norwich Union for what it called an "irresponsible" high-profile TV and radio advertising campaign. The ads suggested the money could be used for a trip to New York or "something for the family".

Given that the insurer's minimum equity-release loan is £15,000 - and would cost around £28,000 after 10 years, Which? estimated - this was an unacceptably expensive way to pay for such luxuries, it said.

The life insurer disagreed it was irresponsible and said it was "confident" the ads, still running, were fair.

Consumer credit: Shoppers rein back on cards and loans

Consumers are racking up new credit at the slowest rate for over a decade, it emerged last week.

Shoppers took out some £927m on plastic or in loans in November, according to figures from the Bank of England, putting annual credit growth at 9.8 per cent - its lowest since September 1994.

The slowdown has been attributed to lenders cutting the amount of credit they're prepared to give to consumers - because of a rise in bad debt write-offs - and to a lack of confidence among shoppers.

Britons now collectively owe £1,148bn, including mortgage debt, Bank figures also revealed.

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