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May 2002
Final Salary Pension Schemes
Is it the end of the road?
ACAS Discriminating Against Women
Is it the end of the road?This year there has been a deafening bombardment of almost daily press articles, which appear to sound the death knell of defined benefit arrangements. Some household names, such as Iceland, Sainsbury's, Abbey National and GlaxoSmithKline have closed their schemes - either to new entrants or completely. So why have employers, and employees, fallen so out of love with final salary pension schemes? For the last 30 years final salary pensions have been core to many employee benefit packages, a proven mechanism in recruiting, motivating and retaining staff. So what's gone wrong? 2002 may prove to be the final nail in the final salary coffin but concerns were first raised some years ago: - Global pension trends in the early 90's, particularly in the US, indicated a shift away from final salary schemes towards defined contribution arrangements
- Robert Maxwell's plundering of the Mirror Group pension fund in 1991 created widespread fear for many employees throughout the UK.
- The subsequent legislation, such as the Pensions Act 1995 and the introduction of the Minimum Funding Requirement (MFR) in 1996, created onerous reporting, administering and finance requirements for all employers with occupational pensions
- The gradual decline of typical 20th century jobs in sectors like manufacturing and engineering has meant that employees no longer have a job - or a pension - for life. Employees are now "job mobile" and are quite prepared to re skill, relocate and change job regularly to get what's best for them.
More recently these issues have focused thinking- Diminishing equity returns over the last few years have led to serious increases in the annual cost of funding for most employers
- The introduction FRS17 in November last year, a new accounting standard, requires companies to show all pension liabilities on their balance sheet. Many companies cannot reconcile this new requirement with those of MFR. Whilst MFR hurts cash flow, the effect on balance sheets of FRS17 will, in some cases, prove catastrophic.
The combination of all these factors has resulted in this years' mass exodus from the final salary arena with employers pulling the plug in droves and many employees opting for the newer, more flexible defined contribution pension plans. For a few employers with deep pockets, final salary schemes will definitely remain an attractive and valuable benefit for their employees. What action should you take? If you are considering what action to take with your company pension scheme think about the following: - Why are you offering a pension to your employees?Do you need to have a pension in place to run your business effectively?
- Do your employees value their pension or understand how much it costs to provide?
- What would the consequences be of continuing to run the scheme?
Once you are clear on these points then these are your options: - You can close the scheme to new entrants
- You can change the way that benefits within each members' fund are expressed;
- You can wind up the scheme completely and put a new defined contribution scheme in place;
- You can carry on the existing scheme.
There has never been a more critical time to evaluate and decide upon your employee pension strategy. Whatever you do decide to do make sure you make the right decision now, as this will almost certainly avoid significant unnecessary expenditure for your company in the future. If you would like some specific advice in relation to your company pension scheme, try the following option: Contact HR Partners on 01473 890037
Almost 900 staff at ACAS, the government arbitration and conciliation service, will share an average of £6,500 per staff member in compensation for years of unequal pay. The move follows an employment tribunal decision from 1999 which decided the ACAS pay system unlawfully discriminated against five women earning less than male colleagues doing the same job. ACAS and PCS (the union that brought the case) have reached an agreement to individually assess and compensate all staff in post before April 1 for up to six years of lost pay. Picasso HR can help you use job evaluation to conduct an equal pay audit. Contact Lina Hogg for more information.
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