Pru closes final salary scheme to new staff

Prudential, one of the best known pension providers, yesterday said it would shut its own generous defined-benefit pension scheme to new employees, following the trend of employers who are cutting their liabilities for old age provision for staff.

The insurance giant will instead offer a defined-contribution pension to all new staff working in its main insurance operations as well as those at its subsidiaries Scottish Amicable and M&G from next year.

The move was condemned by unions. Roger Lyons, the joint general secretary of Amicus, said it was a "shameful act".

Jonathan Bloomer, Prudential's chief executive, denied the company had made the move to save money. He said the decision was in recognition of the high turnover of staff and increase in people wanting to work part-time, where a defined-contribution pension is more appropriate. Mr Bloomer said: "I don't see any conflict between us managing defined-benefit pension schemes for others and what we are doing."

Prudential manages funds in 400 defined-benefit schemes, which are valued by staff because they promise to pay fixed sums out on retirement. The insurer also manages 3,200 defined-contribution pension funds, where the employee takes all of the risk and is not promised a set payout on retirement. Mr Bloomer admitted moving over to defined-contribution arrangements can be bad for staff in some cases, but insisted Prudential staff would benefit because the proposed new scheme was marked a "benchmark" standard.

Prudential said it was not changing its pension arrangements because it faced a shortfall in the fund, which is worth over £3bn and is in surplus over its liabilities. But it admitted it has made the move to lighten the burden of covering pension liabilities in the future, which are set to increase because people are living longer and because of the low-inflation, low-interest rate environment.