Provident Financial, the specialist lender, has become the latest company to try to squeeze its existing employees out of their final-salary pension scheme, forcing them to double their monthly contributions to 14 per cent of their salary if they wish to stay in the plan.
The news comes days after Rentokil Initial, the pest control group, announced plans to close its final-salary scheme to members, sparking a backlash from employees and unions.
Provident Financial announced last week that it would eliminate the £133m deficit in its pension scheme by the middle of next year, beginning with a £31m payment this month. While it also promised investors that it would stabilise the cost and lower the volatility of its staff pension provision, it failed to add that part of its strategy included a move to try to muscle its employees out of its final-salary scheme.
Thegeneral secretary of the TUC, Brendan Barber, said: "Unions have demonstrated that they are prepared to sit down and have meaningful negotiations when major changes are proposed to company pension schemes. But this sounds like employees have been left with little choice but to accept a doubling of their contributions. Many may find it tough coming up with the extra cash and ... will have to put up with an inferior pensions deal."
UK employees typically contribute between 4 and 8 per cent of their salary into their pension each month. Provident Financial's move to demand contributions of 14 per cent would leave their employees paying well above the norm. Those who cannot afford to up their contributions will be removed from the final-salary scheme into a "cash balance" plan, in which they will have to contribute only 5 per cent of salary. Together with its own contribution, Provident Financial said it will guarantee that employees in this scheme see 20 per cent of their salary credited to their pension each year.
Provident Financial closed its final-salary scheme to new employees in 2003. Some 2,200 of its 3,500 employees are active members of the old scheme. A spokesman for the company said management had held discussions with employees before enacting the new plan. He added that final-salary schemes had become too expensive to be sustainable at a low level of employee contribution. "We're committed to good, sensible pension provision, and we think we've done as well as we can given the difficult circumstances," he said.
The National Association of Pension Funds has said it expects many more companies to attempt to close their final-salary schemes to existing members.Reuse content