Friends Provident, the FTSE 100 life insurer, became the latest company to announce it was closing its final salary pension scheme to new members yesterday, forcing its existing staff to choose between working longer or giving up more of their salary to keep their existing package.
The news provoked an angry reaction from the trade unions which have been in confidential talks with the company to try to prevent the closure for several weeks. Amicus, Britain's largest private sector union, accused the company of "following the market", claiming it was embarking on a cost-cutting exercise at the expense of its staff.
Barry Jones, Amicus's regional officer, said: "Amicus is extremely disappointed that Friends Provident is to close its final salary pension scheme to new entrants and force existing staff to choose between a pay cut and working longer."
Under the proposals, the current final salary scheme will be closed to new entrants as of next July. However, the retirement age will be increased from 60 to 65 for those already in the scheme as of October this year.
Those who still wish to retire at 60 will have to increase their monthly contributions from 3 to 7 per cent of their salary over the next four years. However, those who agree to retire at 65 will have their monthly contributions reduced from 3 to 2 per cent of their salary.
As of next July, all new employees will be enrolled in a new money purchase pension scheme into which Friends Provident will contribute 8 per cent unconditionally, as well as matching any employee contribution up to another 5 per cent.
Keith Satchell, the group chief executive, said: "We have been working closely with Amicus and the pension scheme trustees for some months and are now entering a new phase of consultation with employees about the changes planned for mid-2007. Our proposals demonstrate our ongoing commitment to the security of the current pension fund and to provide high-quality pensions to our employees, both current and future."
The changes come in spite of the relatively healthy state of Friends Provident's £850m final salary scheme. At the end of 2005, it had a deficit of just £19m. It has 15,500 members, of whom about 4,000 are still employed by the firm and will be affected by the changes.
Friends Provident joins the likes of Royal Bank of Scotland, Travis Perkins, Harrods and National Australia Bank which have closed their UK final salary schemes to new members over the past six months.
The swath of scheme closures has been driven by new scheme funding rules introduced by the Pensions Regulator earlier this year.Reuse content