UK- Prudential, the UK’s second largest life assurer, plans to close its final salary scheme to new employees, joining other FTSE 100 companies such as British Airways, Marks and Spencer and J Sainsbury.
While other companies are closing their DB schemes as a result of pension deficits, Prudential insists that it is not switching to a defined contribution as a result of financial weakness. In April 1999, the fund had a pension surplus running at 116% although Prudential was unable to supply more up to date figure.
Prudential also believes that the DC scheme will be a better arrangement for its employees. The plan allows for contributions of up to 18% with Prudential contributing up to 12% of basic pay and employees a maximum of 4%. It maintains the new scheme also offers better death and illness benefits than the final salary scheme.
Says a spokeswoman for Prudential: “the final salary benefits will be retained for existing staff, although it may suit them to swap to the DC scheme.” Amicus, the UK’s largest private sector union, described the move as “shameful.”
Prudential currently has three pension schemes: Prudential plc staff pension scheme with 6,000 active members, 17,500 pensioners and 26,000 deferred pensioners, Scottish Amicable with 2,500 active members, 400 pensioners and 5,000 deferred pensioners, and M&G with 800 active members, 100 pensioners and 400 deferred pensioners. All three will be closed, and Prudential hopes to introduce the new DC plan to new employees in the first half of 2003.
The increasing closure of defined benefits schemes has raised concerns among the unions. Back in June, research published by the Association of Consulting Actuaries showed only 37% of DB schemes in the UK remained open to new entrants.
One in ten schemes had started winding up, 14% were closed to future accrual while 39% were closed to new entrants. Of those schemes still open, almost half were contemplating closure.