Money-purchase move reflects modern careers

BT has closed its final-salary
pension scheme, but it has denied that the move is a bid to cut costs.

The firm’s £25bn
scheme is thought to be one of the biggest in the country, but from this month
all new employees will only be able to join BT’s money-purchase pension scheme.

Under final-salary
pension schemes, the pension an individual receives is based on their salary at
or near retirement, whereas with money-purchase schemes the value is determined
by how much is put in and the performance of the stockmarket.

A spokesman for BT,
which is trying to reduce its £30bn debt, said the company had made the change
because money purchase pension schemes were better suited to today’s
fast-moving labour market.

She said,
"Working patterns are changing. Now people expect to have several different
jobs during their lifetime and they are looking for a pension that reflects
that. The defined contribution approach was more appropriate for them."

The spokesman said the
changes had been made in consultation with unions and claimed the money purchase
scheme would cost BT about the same as the final salary scheme.

BT is the second major
UK employer to close its final-salary scheme to new employees following ICI,
which recently adopted a similar strategy.

Roger Key, a partner
at consulting actuaries Watson Wyatt, said the move to money-purchase pensions
meant uncertainty for employees.

"From a company’s
point of view, final-salary pension schemes have a volatile cost in terms of
the contributions it has to pay," he said.

"Under
money-purchase schemes, the investment risk is transferred to the employee. If
they retire at the right time they will get a good pension, if they retire at
the wrong time they won’t."

Key said
money-purchase schemes are better for people at the start of their careers who
are unlikely to stay in the same job.

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