The number of pension schemes based upon the level of final salary, that is, salary at retirement age or averaged over the last few years of earning life, continues to decline or be devalued. Such “defined benefit” schemes, using the jargon, now cover only three of the UK FTSE 100 companies for new members according to actuaries Lane Clark & Peacock. They are Tesco, Diageo and Cadbury. The three businesses that treat and indulge the body.
Another big firm of actuaries, Watson Wyatt, have forecast that half of all final salary schemes will be closed to existing members by 2012.
RBS, the 70% nationalised bank, have announced a downward move on their pension scheme that has been closed to new members since 2006. Affecting 62,500 staff, the rate of growth in pensionable salary will be capped at 2% a year or the annual rate of inflation, whichever is lower. This means regardless of pay rises. The move is costed to save RBS £100m a year. Alternatively, the staff can move to a defined contribution scheme and into which the employer will pay a generous 15% of salary. Actuaries think the change will produce a £500m one-off gain to boost the annual profit.
Staying with banks, Barclays is moving 17,000 staff into a hybrid scheme that should save the bank about £150m a year. A strike is threatened over this one.
One bit of good news is that the disgraced Sir Fred Goodwin agreed to forgo £4.7m of his top-up while still taking a £2.7m lump sum from RBS and an annual pension of £342,000.