Co-op Bank employees told to help shoulder pension burden

More than 4,000 employees of the Co-operative Bank will have to pay contributions into the group's pension scheme for the first time in the company's history, as it battles to cut a £140m deficit.

More than 4,000 employees of the Co-operative Bank will have to pay contributions into the group's pension scheme for the first time in the company's history, as it battles to cut a £140m deficit.

The Co-operative Bank, which last week reported record profits of £130m for 2003, is the latest employer to call time on generous pension arrangements in the face of mounting liabilities to fund workers' retirements. However, the move is a significant admission of financial reality from an organisation that prides itself on being a generous and ethical employer.

The bank said it had partly tackled its deficit, measured under the new FRS 17 accountancy rules, by injecting £14m into the fund this year. But it has told staff they must also start making contributions. From next January, they will have to hand over 2 per cent of their salary into the scheme, rising to 6 per cent within three years.

The Co-operative Bank said the strength of last week's results were due to increasing demand for its products, based on principles of ethical investment, and meant it would take on an extra 500 employees.

Anyone joining the Co-operative Bank from July will have to pay 6 per cent into the pension scheme straight away. All members of staff will continue to receive a contribution equal to 15 per cent of their salaries from the bank.

The majority of Britain's major companies have been forced to increase funding to their pension schemes, in the wake of a slump in equity markets and increases in life expectancy. Companies used a widespread rebound in their profits last year to try to deal with their deficits by almost doubling cash contributions to their pension schemes, according to a study to be published this week by the actuaries Watson Wyatt. "Pre-tax profits were for many companies up 30 per cent on average over their 2002 levels, so companies could afford to, and have, paid in more," said Chinu Patel, a partner at Watson Wyatt.

But despite a doubling in contributions, pension fund deficits remained hardly changed at £60bn for FTSE 100 companies. Watson Wyatt said this was because extra contributions were offset by a fall in bond yields and expectations of a rise in inflation. Watson Wyatt's survey, which covered most of the pension schemes of FTSE 100 companies to have reported their full-year results by the end of December, also found that about 60 per cent of assets were invested in equities, hardly changed on a year earlier.