Royal & SunAlliance, the UK insurer, became the latest company to take responsibility for the sizeable hole in its employees' pension schemes yesterday, announcing a restructuring plan which will reduce the schemes' deficit by £180m.
The move will see RSA change its pension plans from final salary to career average schemes. This means employees' pensions will be calculated on the basis of their average salary when they retire, rather than on the salary they earn when they stop work.
RSA, which is headed by chief executive Andy Haste, has a pension deficit of almost £700m on an FRS 17 accounting basis, according to its latest annual report. However, the company said that using an alternative accounting method, it believed the deficit to be £370m after tax. It said the net effect of its changes would be to reduce the deficit by £126m to £244m.
It added that it will also commit a further net annual payment of £60m for the next three years to continue reducing the deficit. This will leave the company with a substantially smaller hole in the schemes by 2007.
RSA said it enacted the changes after lengthy discussions with Amicus, its recognised UK union. Amicus supported the move, and secured 83 per cent support from its members in a balloted vote.
As a further measure to secure its scheme members' benefits, RSA said it had reduced the risk in the pension fund's portfolio, by hedging against future interest rate and inflation movements.
RSA reassured members of the scheme who have already retired, or who have deferred their benefits, that they will not be affected by the changes. However, existing members who retire after 1 January 2006 will be subject to the new regime.
The insurer follows in the footsteps of a growing number of large UK companies which are being forced to face up to the holes in their pension funds. Earlier this year, Royal Bank of Scotland announced it was paying down some £750m of its £2bn deficit, while Marks & Spencer paid down a proportion of its £1.2bn deficit last year.
However, the collective pension fund deficit across the UK's 100 largest companies alone is still more than £60bn.Reuse content