Barclays turns back pensions tide with guaranteed payout
Barclays has become the first major employer to turn against the tide of companies who are abandoning final salary pension schemes by agreeing to launch a new scheme guaranteeing staff a final pay-out.
The scheme is made up of two elements - a credit account guaranteed not to fall in value and an investment account. Called Afterwork, it will not be as risk-free as traditional final salary schemes, which typically pay out two thirds of final salary on retirement whatever has happened to the underlying investment while it matures. The so-called credit account only guarantees that an amount equivalent to 20 per cent of basic salary earned over the lifetime of employment will be made available to Barclays' staff aged 60 in order to buy an annuity.
The move is unusual at a time when many UK companies are moving away from offering any guaranteed final pay-out at all because such promises have become increasingly expensive to fund in the dire stock market conditions of the past three years.
Barclays' final salary or defined benefit scheme has 40,000 members and has been closed to new members. The 24,000 employees currently in its newer defined contribution scheme will move over to Afterwork, and it will be available to all new employees.
The high street bank said its workforce could also contribute to an additional fund, called the investment account.
Employees can contribute to the investment account by putting in up to a maximum of three per cent of their basic salary. This is matched by Barclays and the employee then decides how to invest the money. This fund will work just like a defined contribution pension, where the eventual pay-out will not be underwritten by Barclays and will depend solely on investment return.
Stuart Stephen, Barclays pensions director, said: "We believe our new pension cuts through the current uncertainty about poor investment performance by guaranteeing staff part of their pension pot and offering them a more predictable pension when they reach retirement."
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