Closing down final salary schemes damages company confidence

Employers
should resist pressure to close final salary pension schemes to existing
employees, according to the CIPD, arguing that to do so works against effective
recruitment, retention and motivation of staff.

CIPD
employee relations adviser Mike Emmott said defined benefit schemes are
increasingly seen as an important part of the reward package and employers
should think twice before axing them.

"The
development of the occupational pension scheme has been one of the real
successes of post-war Britain," he said, "and while we appreciate the
need for employers to maintain investor confidence, scrapping or diluting
occupational schemes looks like throwing the baby out with the bathwater.

“We
know employers can’t support open-ended obligations which are influenced by
factors outside their control. Changes to tax and accounting requirements, as
well as declining stock market returns have delivered a body-blow to the
affordability of the traditional pensions scheme.

“However
we would urge employers to think long and hard before closing down existing
arrangements and seek alternative ways of funding them, for example by raising
employee contributions.”

The
CIPD also argues that the Government should look urgently at helping to relieve
the burden on employers, for example by re-instating advanced corporation tax
relief and by ensuring that funding and reporting calculations are taken over a
longer period.

Emmott
added: “Where people are applying for jobs they can judge whether or not to
accept the terms on offer. But existing employees are in a different category.
They were recruited on one basis; by taking away the defined benefit pension,
they are effectively being told they can only continue on another. This does
not help to build up the trust that is so important to engaging the
wholehearted contribution of employees needed if companies are to outperform
the competition.

“While
employees will not know precisely what income the scheme will produce, they
know they can expect a pension that will bear a defined relationship to their
pay. That is enough for them to conduct their financial planning on an informed
and responsible basis.

"The
reality is that for many people their entitlement to an occupational pension is
their largest financial asset – probably more valuable than their home. To take
away this asset and substitute something much less valuable is highly damaging.”

By Ben Willmott

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