UK – UK motoring organisation RAC says it is maintaining its final salary pension scheme and extending it to its younger employees – though staff will have to choose whether to take reduced future benefit levels or make increased contributions.
As a result of a review, it said it would be: “Maintaining its final salary scheme for existing and new employees, and extending the scheme to younger employees, who were previously unable to join due to a minimum entry age of 25.”
It said it would increase its cash contribution by 2.5 million pounds (3.7 million euros) in the second half of 2003 and “by five million pounds a year thereafter”.
The higher contributions are to offset the scheme’s deficit, which stood at 129 million pounds under the FRS17 accounting rule. FRS17 takes a market view of a pension fund’s liabilities.
The RAC is bucking a trend, which has seen widespread closures of final salary schemes in the UK.
“The cost of providing pension benefits for the future has increased significantly,” the company said. “This is primarily because people are living longer, typically drawing a pension for twice as long as they did in the 1960s, which requires a proportionate increase in funding.”
“In addition, tax changes and lower anticipated investment returns are also increasing costs.”
The RAC’s staff will have to pay in part for the decision. “To maintain its final salary scheme, RAC plc will share the increase in costs with employees, who will be offered the choice of reduced future benefit levels or increased employee contribution rates from July 1 2003.”
The RAC, which began life as the Automobile Club of Great Britain in 1897 and merged with Lex in 1999, said the decision was agreed in consultation with the fund’s trustees and unions, employee groups and legal and actuarial advisers.
RAC chief executive Andy Harrison said: “The actions we are taking will secure the future of our pension scheme, which provides a valuable benefit to all our people.”
“The changes also provide the flexibility for people to choose
their preferred level of pension benefit.'
The decision was welcomed by the transportation union. The general secretary of the Transport and General Workers Union, Bill Morris, said: “We are very pleased that RAC is retaining its final salary scheme. The company has demonstrated its commitment to a long-term solution to a difficult issue.”
RAC posted a pre-tax profit for 2002 of 23.1 million on 73 million of operational cashflow.
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