Employers will need to place greater emphasis on total reward as more occupational pension schemes are closed or altered, pension specialists have warned.
Last week, two more companies announced changes to their final salary pension schemes. The Co-operative group is to scrap its final salary pension while Arcadia has raised its standard retirement age from 60 to 65. Staff at the retail group must also lift their contributions from 4% to 6% of their salary or see future payouts fall.
Philip Green, Arcadia’s billionaire owner, has also hinted that staff in the final salary scheme at BHS, his other main company, could face similar demands.
Last month, Rentokil Initial became the first FTSE 100 company to close its final salary pension scheme to all staff.
Gary Smith, senior consultant at consultancy Watson Wyatt, said these moves were a sign that employers were seeking to control the rising costs of pension provision.
“Before Rentokil [made its decision], most employers would have felt doing this was a particularly unpalatable move,” he said.
“Once one company decides to do it, others follow. Employers are looking to reduce costs and move to a more sustainable pension arrangement.”
Smith said that workers needed to accept that final salary schemes were no longer viable. To cushion the blow, employers must place greater emphasis on their employees’ total reward packages, he said.
“This is a big challenge for the HR department. There can be a lot of misconceptions among staff about pensions and benefits. Spending more time and effort on communication would help a lot,” Smith said.
Recent research by consultants Deloitte said the UK’s top companies saw their pensions debt increase to 75bn, up 10bn in a year. And a survey of workplace pension providers in November by the National Association of Pension Funds revealed that 24% expected to close final salary schemes.