Page last updated at 08:49 GMT, Wednesday, 8 July 2009 09:49 UK

IBM consults over pension closure

IBM sign
IBM said it understood the changes would be "sensitive and difficult"

Computer giant IBM is consulting on the closure of its final-salary pension scheme to current members of its UK and Republic of Ireland workforce.

More than a quarter of IBM's 20,000 UK staff will be affected. The scheme closed to new members a few years ago.

In an e-mail to staff, IBM's UK and Ireland general manager Brendon Riley said the plans were caused by rapidly-rising costs and liabilities.

The scheme was putting pressure on the firm's competitiveness, he added.

Rising costs

Mr Riley said he understood the plans to end the final-salary or defined-benefit pension scheme would be "sensitive and difficult for many", but were responsible and necessary to ensure IBM UK's future industry leadership.

Occupational scheme - one organised by an employer
Active member - a worker making contributions
Final-salary scheme - guaranteed pension based on earnings at end of career and length of service
Defined-contribution scheme - investment fund, determined by contributions and investment returns, used to buy an annual pension

His e-mail read: "For IBM UK also, the rapidly-rising costs and liabilities associated with the provision of defined benefit pensions is placing pressure on our long-term ability to invest for future growth and operate in an intensely competitive global market."

IBM said staff would be consulted on the proposed changes for 60 days starting from 5 August, and that it would only make a final decision following employee feedback.

A growing number of firms are closing their final-salary pension schemes to save money, switching staff to cheaper alternatives, such as defined-contribution.

In June, Barclays said it was planning to close its final-salary pension scheme to existing members.

Last month, MGM Advantage - using data from the TUC and the Office for National Statistics - estimated that employers had saved themselves £4.5bn a year by closing final-salary pension schemes.

A separate study by Aon Consulting has estimated that the UK's 200 largest final-salary pension schemes have a combined deficit of £73bn.

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