Lloyds plans to cut pension scheme benefits

(AFP/Getty Images)

Lloyds Banking Group today announced plans to reduce the benefits staff receive under its final salary pension schemes.

The part-nationalised bank is proposing limiting the level of staff pay increases which will be used in pension calculations to either 2 per cent a year or Retail Prices Inflation, which ever is lower, from April next year.

The move would lead to a reduction in the pensions that the 56,000 members of the groups' schemes receive, as a lower salary would be used when calculating their retirement income.

But Lloyds Banking Group said the change was necessary to enable it to keep the schemes, which have already been closed to new members, open and to run them on a sustainable basis.

The proposed change, which is subject to consultation, is part of a move by the group to harmonise the terms and conditions of its Lloyds TSB final salary pensions and the HBOS scheme, following its takeover of the HBOS group.

But the Lloyds TSB Group Union accused it of "naked opportunism" and claimed the change would lead to staff effectively having two salaries, their actual salary and a lower one upon which their pension was based.

It said the move would have a big impact on the annual pensions people received, particularly for staff who were still 25 years off retirement.

Mark Brown, assistant general secretary at Lloyds TSB Group Union, said: "Lloyds Banking Group has taken the cynical decision to use the current economic and banking crisis as an opportunity to cut pension costs.

"It is desperately opportunistic and will be resisted strongly by LTU and its members."

A Lloyds spokesman said: "We are committed to the (final salary) scheme but we think it is right that it is run on a sustainable basis. These are proposals and they are subject to consultation."

The proposed changes are similar to ones recently introduced by Royal Bank of Scotland and Marks & Spencer.

Lloyds TSB's two final salary schemes had a combined deficit of £3.7 billion when they were last valued in June 2008, up from a shortfall of £1.5 billion three years earlier. The HBOS scheme is currently being valued.

A growing number of companies are looking at ways to reduce the cost of their final salary schemes after they have become increasingly expensive to offer in recent years due to investment volatility and increased life expectancy.

The majority of firms have now closed the schemes to new members and there is a growing trend for them to be shut to existing ones as well.

Lloyds Banking Group is also making changes to its defined contribution schemes, which have 54,000 members.

It is planning to launch a new defined contribution scheme for new staff in April, with all existing members of staff who have a DC pension transferred to it during 2011.

Staff will contribute at least 3 per cent of their salary into the scheme, while the company will pay in 8 per cent.