John Menzies, the newspaper distributor and airport baggage handler, yesterday revealed that it is closing its final-salary pension fund to new staff, but will allow loyal employees that stay with the group for at least five years to enter the scheme.
The news emerged as the company posted a £31.4m deficit in its pension fund under the accounting standard, FRS 17. It is, for the first time, expecting to take a charge on its profit and loss account for its pension fund in 2003 of £1.2m, compared with a credit of £3.6m last year.
David Mackay, the outgoing chief executive of the company, yesterday said the change was to better reflect the nature of its workforce, which tends to have a high turnover. The defined contribution scheme for new employees is designed to allow staff that only stay with the company for a relatively short spell to accrue more flexible pension benefits.
"We have many numbers of people that do not work for us for very long. That is why we have introduced the new scheme. We are giving our workers more flexibility, but are rewarding their loyalty by keeping the final-salary scheme open to those that stay with us for more than five years," said Mr Mackay, who was behind the company's transformation in to a logistics services provider from a high street newsagent. It sold its retail outlets to WH Smith in 1998.
Mr Mackay also said the pension fund had been struck by the decline in equity markets, in which it invests about 50 per cent of its assets.
"In light of the markets, we have decided to close the scheme. We have enjoyed a pension contributions holiday and have taken a pension credit in our accounts, but we are now set to take a charge. Our assets have gone down, but our liabilities haven't changed," Mr Mackay said.
He said yesterday that the company was taking pre-emptive action on the problems in the pension fund and would be considering whether to re-start contributions to the fund.
John Menzies is the latest in a long line to close its final-salary scheme, which guarantee workers a level of retirement benefits and are costly to provide. Yesterday it vowed to retain the pension package for members of its defined-benefit scheme.
"We are not walking away from our defined-benefit scheme," Mr Mackay said. "We are keeping it open for the staff who will benefit from it most." Companies are coming under increasing pressure to cap the costs of their final-salary schemes, as ratings agencies such as Standard & Poor's have said they may consider putting companies on a credit watch in light of their pension commitments.
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