Michelin to axe UK staff pension

Michelin's plans will affect thousands of UK workers

Michelin plans to close its final-salary pension scheme to existing members in the UK and transfer staff to a money-purchase scheme.

The French tyre maker said it wanted to do this to stop its pension scheme deficit ballooning in the future.

Unions have attacked the decision, which will hit 2,800 Michelin workers employed at plants in Stoke-on-Trent, Dundee and Ballymena.

It will also affect 1,600 staff employed by ATS tyre garages.

Deficit

This is not a cost saving measure - it's a stability measure Jim Rickard, Michelin UK managing director

Michelin closed its final-salary scheme to new staff three years ago.

But the deficit in it has grown, from £57m in 2002 to £260m in 2006, despite the company paying in an extra £105m during that time.

"Factors outside our control could cause the liabilities to balloon in the future," said the company's managing director in the UK, Jim Rickard.

"This is not a cost saving measure - it's a stability measure," he added.

He explained that the deficit might expand further because the pension scheme was expecting lower investment returns, and staff were now expected to live for three years longer than before.

Consultation

Transferring staff to the newer scheme is scheduled to take place in 18 months following a consultation period.

We'll call for meaningful talks and serious consideration of alternatives to closure but our fear is the company has made its mind up Rob Taylor, T&G

Currently they pay in 5.25% of their salaries and the company pays in 12%.

In the money purchase scheme, employees pay between 1.55% and 6.25%, rising steadily with age, while Michelin pays in between 2.2% and 9.25%.

Mr Rickard said that taking into account extra national insurance contributions, for membership of the state second pension, then the cost to the company of the new scheme was similar to that of the final salary one.

But Rob Taylor, T&G convenor at the Stoke plant, said he was dismayed by the company's plan.

"This looks like a fait accompli by Michelin which throws the retirement plans of over 3,000 people into chaos," said Mr Taylor.

"We will go into the consultation with our eyes open and we'll call for meaningful talks and serious consideration of alternatives to closure but our fear is the company has made its mind up."

Scheme closures

Michelin is one of the small but growing number of employers who are not only closing schemes to new joiners, but also evicting existing contributors and offering them membership of new schemes that are often cheaper for the company as well.

Earlier this month, the emergency services radio firm, Airwave O2 , announced the closure of its final salary pension scheme, affecting 800 staff.

The WH Smith pension scheme, covering staff at both the newsagent and the now separate news and magazine distribution company, has also closed to existing members.

In general, pension schemes are seeing their deficits shrink, due to improved investment returns and one-off payments by employers.

But for some companies the financial risk of keeping the scheme open has been deemed too great.

Michelin's plans

Under Michelin's proposal, members of its scheme will stop building up any further benefit in it from 1 January 2009.

Accrued pension benefits will be preserved and will still be linked to future salary increases and the final salary at retirement.

But for future employment with the company, members will have to transfer to the money purchase pension scheme, which was introduced for new joiners in 2005.

Meanwhile the company plans to pay off the enlarged deficit in its final salary scheme over the next 10 years by continuing with its extra payments.