Barclays is planning to close its final salary pension scheme and move all staff on to a defined contribution (DC) alternative, sparking outrage from trade unions representing the 18,000 people affected by the changes.
John Varley, the bank's chief executive, told employees yesterday that the company's UK Retirement Fund plummeted from a £200m surplus to a £2.2bn deficit over the year to September 2008 and has worsened since, leaving the company in an "untenable" situation.
"I have formed the view (and I have to tell you that I have formed it reluctantly) that allowing the current position to remain unchanged – which will in time threaten our ability to meet the existing obligations – is untenable," Mr Varley said in a letter to staff. "So I believe that the interests of present and future employees of Barclays, and the interests of our pensioners, are best served by taking action now. We have not arrived at this proposal lightly."
But the plan to shift all final salary members on to the cheaper DC scheme will be met with "deep anger", according to the trade union Unite. Rob MacGregor, at Unite, said: "This proposal is a break in the promise by Barclays to their workforce that they will not put profits before people. This attack on the pensions of the loyal and hard-working staff at the bank is utterly alarming. The union is urging the bank not to establish this change."
Low interest rates, poor equity returns and rising life expectancy have sent final salary pension costs ballooning, and only a handful of FTSE 100 companies, including Shell and Tesco, still have such schemes open to new members. Earlier this week, BP added its name to the list, shutting its $18bn (£11bn), 69,000-member scheme to all new recruits from April 2010.
Barclays' final salary pension has been closed to new entrants since 1997, and the plan to shift existing members on to a DC scheme is the next step. All existing accruals will be safe, but future payments will be made into the "Afterwork" scheme, which already has 40,000 members and under which the bank pays in up to 20 per cent of the employee's pay.
Companies of all sizes are increasingly struggling to meet the costs of final salary schemes, according to John Ball, the head of defined benefit consulting at Watson Wyatt. "It's no longer such a small minority of companies who have closed their final salary schemes to existing members," he said. "There could be a snowball effect if companies find it harder to justify to their shareholders why they are not taking the actions to curb pension liabilities that other companies are."
Yesterday also saw the announcement of another 510 job losses at Lloyds Banking Group, taking the company's total redundancies to nearly 3,000 since the government-brokered merger between Lloyds and HBOS in January. The group is closing an office in Kent, with the loss of 190 full-time roles, and restructuring its community banking division, taking out another 320 positions across the country. Lloyds will try to redeploy affected staff and compulsory redundancies will be a last resort, the company said.
Singapore sell-off: Temasek loses £500m offloading stake in Barclays
Temasek Holdings, the Singaporean state-backed fund which began investing in Barclays two years ago, has sold out of the bank at a loss of about £500m, it emerged yesterday – a day after a prominent Middle Eastern investor moved to scale back its investment in the group.
The fund, which held an interest of just below 2 per cent, closed its position earlier this year, selling down over several months, according to people familiar with the transaction. Unlike the Abu Dhabi royal family, which booked a handsome profit of about £1.5bn after placing 1.3 billion Barclays shares on Tuesday, Temasek was left nursing a hefty loss, as it began investing at the top of the market in the summer of 2007, when Barclays shares, which ended at 259.75p last night, were above 700p. The fund also agreed to spend up to £200m as part of a fundraising last year, before Lehman's bankruptcy triggered an across-the-board sell-off in banking shares.
The fund sold most of its stake in December and January, but would have registered a smaller loss if it had waited for the recent recovery in bank shares.
Last night, Temasek declined to comment on its interest in Barclays.