BA scraps final salary pensions for new staff

As yet another major UK company scrapped its final salary pension scheme, the Government came under attack yesterday from the Opposition for what it called "a wasted opportunity".

British Airways said that new employees would be put into a defined-contribution pension scheme after it revealed that under new accounting rules the existing defined-benefit schemes had thrown up a £394m shortfall on total investments of £10bn.

Under defined contributions members' pensions are determined by how well the fund is invested. The defined-benefit schemes pay a proportion of final salary, irrespective of investment performance.

John Rishton, BA's finance director, said: "We are looking for cost-certainty, not cost savings. We will discuss the level of contributions with our trades unions and begin the scheme in the autumn."

Alistair Darling, the Secretary of State for Work and Pensions, claimed yesterday that such a change may be to employees' advantage.

He told the annual conference of the National Association of Pension Funds: "For some people a defined-contribution scheme may be more appropriate than a defined-benefit scheme. The overriding issue is how much is being saved towards that pension."

In a wide-ranging review of Government policy, Mr Darling pledged to make pensions "more easily understood and more easily available. In short – to make pensions genuinely popular."

He suggested that lessons could be learned from individual savings accounts (ISAs). Because of its simplicity it provided a basic model which was easily understood.

Mr Darling added: "Unless we can make pension products as simple as possible we will not get the level of savings we all want to see. Other measures will be needed too, and we'll set out our proposals later this year."

"It is clear to me that when people find it too difficult or too confusing to understand a pension, the pendulum has swung too far in favour of regulation and complexity."

But the Tory pensions spokesman, David Willetts, said: "Darling wasted an opportunity where he could have demonstrated that the Government takes the problem of pensions seriously and introduced measures to tackle it."