M&S cuts back pension scheme

Marks & Spencer's new recruits will be worse off

Retail giant Marks & Spencer is to close its final salary pension scheme to new members from the beginning of April.

In so doing, the firm will join the growing ranks of UK blue chip companies that are scaling down their pension commitments to save on costs.

Scaling back final salary schemes

ICI

BT

Abbey National

Ernst & Young

Iceland

Lloyds TSB

The retailer, which has had one of the most generous and biggest final salary schemes, will instead offer new employees a defined contribution or money purchase scheme, topped up by contributions from the company.

The move was criticised by unions. Amicus, one of the unions campaigning against the closure of final salary schemes, called the move "another tragic blow".

"Legislation is now urgently required to stem the poisonous tide of this pensions massacre," said a spokesman.

Risk with the individual

Under money purchase schemes, the pension achieved is based on how much is saved, how well the investments perform and what rate is obtained for the annuity, an investment product providing an annual income that the pension holder is legally obliged to buy.

The risk of poor investment performance - or untimely decline in annuity rate - lies with the individual pension holder.

Final salary schemes, although not suitable for everyone, are often seen as more in employees' interests because this risk lies with the company not the individual.

Also, companies typically contribute more on employees' behalf to final salary than to money purchase schemes.

Door shut

Under M&S's new scheme, an employee must contribute at least 3% of their salary.

The company will then add a contribution of 6% salary, increasing to a maximum of 9%.

Marks & Spencer is one of a growing list of companies moving away from final salary to cheaper money purchase schemes.

Imperial Chemical Industries, British Telecom, Abbey National, Ernst & Young, Iceland and Lloyds TSB have all announced changes to their final salary schemes widely seen as detrimental to existing or future employees' interests.

The National Association of Pension Funds found said 46 companies closed their final salary schemes to new members during the year to October, compared with only 18 the year before.

Thirteen companies closed final salary schemes to existing members, transferring them to money purchase, compared with six in 2000.