UK - Barclays' decision to close its UK defined benefit pension scheme may have been influenced by regulatory capital requirements, according to pensions consultancy Punter Southall.
Simon Banks, principal at Punter Southall, suggested the pressures on banking groups now to meet regulatory standards and capital limits means any shift in the pensions balance could force other firms, like Barclays, to reconsider their pension plans.
"One might think a 'too big to fail' bank like Barclays would be well able to absorb the risks of a final salary scheme," said Banks.
"However, banks are generally required to carry extra capital to protect against pension risks, over and above their contributions to the pension plan. In an environment where capital is tight, this 'hidden' pension cost assumes greater significance."
He continued: "The actions taken by Barclays should reduce the amount of capital required to back future pension promises. I wouldn't be surprised if other banks and building societies took similar action in the coming months."
Barclays announced earlier this week that it is closing its final salary pension scheme to future accruals from 1 December this year.
The Barclays UK Retirement Fund (BUKRF), worth £15bn (€17.26bn) at the end of December 2008 and with 18,000 active members, had already been closed to new members since 1997.
Two much smaller schemes acquired through takeovers are also being closed and officials are reviewing existing arrangements elsewhere.
The bank said that BUKRF was £2.2bn in deficit as of 30 September 2008, the last funding update, but the shortfall is likely to have worsened since then.
Despite closing to the DB scheme to future accrual, the bank intends to make additional contributions to the scheme for 2009, and reinvest any one-off savings which result from the proposed changes into pension funding.
From December 2009, active members of BUKRI will be able to join Afterwork, Barclays' hybrid cash balance pension scheme, to which the majority of the bank's staff belong. Staff working at Barclays Capital or Barclays Global Investors will be able to join the Pension Investment Plan.
Employees in the Afterwork scheme contribute 3% of pensionable salary into the credit account, receiving a credit of 20% of pensionable salary each year, payable in full at normal retirement age. They get inflationary increases of up to 5% each year, and discretionary investment-related increases of up to 2% each year. Capital protection is provided.
Afterwork members can also make additional savings via the investment account, a DC account invested in a range of funds selected by the trustee. Barclays matches the first 3% of contributions in whole 1% increments.
The bank is now starting a two-month consultation process with Unite, the UK's biggest trade union, which represents Barclays workers.
The flurry of decisions regarding final salary schemes this week has now also seen Morrisons, the UK supermarket chain, shift the future accrual on its £430m WM Morrison 1967 scheme and its WM Morrison (Safeway) scheme from final salary to career average.
The latest financial statement from Morrison yesterday announced this move will take place "at the half-year stage", and follows earlier action to derisk the scheme by reducing equities, shifting mortality assumptions to more realistic levels and a £200m cash injection, as agreed with trustees.
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