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Managers, strategy under scrutiny at Co-Op

UK – The Co-operative Group’s decision to shut its final salary scheme and create a single £4.7bn (€6.8bn) career-average salary fund will put both investment strategy and fund managers under review if trustees formally approve the change.

The group has proposed merging its £2.4bn Co-operative Group Pension Fund, its £1.94bn CIS Employees’ Pension Scheme and the £403m Co-operative Bank Pension Scheme.

The creation of a single scheme will mean that investment strategy and fund managers may need to be reviewed going forward, said a Co-operative Group spokesperson.

This could mean that Legal & General along with State Street Global Advisors, Fidelity, LaSalle Investment Management, Western Asset Management, Record Currency Management and Lazard Asset Management are put under the spotlight.

“It would make sense to review fund managers in the future, but we must first pass the first hurdle,” the spokesperson stated.

He explained that while the trustees have agreed to the single scheme in principle, they need to formally approve the change. No date for a final decision has been set, but the group hopes to have the fund up and running by April 5.

The decision to change from a final salary scheme to an average salary scheme comes in the wake of several company decisions to slash pension benefits rather than close final salary schemes altogether.

It has also attracted much criticism from the Transport & General Workers’ Union, which has not ruled out industrial action against the possible move.

However, market watchers reckon the union backlash is unwarranted.

“The trade unions are fighting the wrong battle here,” said Aon Consulting’ chief actuary Donald Duval. “Even after these changes, workers for these companies will have reasonable employer pensions (if they choose to join the scheme).

“The trade unions should be concentrating on the 70% of private sector workers who have no company pension at all.”

Reports today also stated that staff at Philip Green’s Arcadia retail group was told that current benefit levels will only be maintained if they increase their pension contributions from 4% to 6%, and work to 65 rather than 60.

A spokesperson for the National Association of Pension Funds stated: “Our view is that, for a variety of reasons - principally greater life expectancy, additional regulatory costs etc, employers are finding it increasingly difficult to sustain the cost of providing final salary pensions.

“It is encouraging that, despite this, they are finding ways of managing those costs sensibly, whilst retaining valued retirement provision for their employees.”

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