Page last updated at 14:30 GMT, Wednesday, 3 June 2009 15:30 UK

Barclays and BP to cut pensions

BP petrol station
Pensions for BP's new staff will be far less generous than before

Barclays bank has become the latest employer to propose closing its final salary scheme to existing staff.

Barclays argued that managing its costs, including those of its pension fund, was a "top priority".

"It is in the best interests of all Barclays employees and shareholders for us to do so," said the bank.

Meanwhile, oil company BP, one of the largest employers in the private sector, is to close its UK final salary pension scheme to new recruits.

The change, which will start in April 2010, is aimed at saving the company money and restraining the rising cost of funding the pension scheme.

The scheme currently has 60,000 members, with 12,000 staff paying in.

BP explained its decision, saying: "The main reason is managing future costs and risks, which are much more difficult to predict."

Many closures

The closure of pension schemes to new recruits started in the mid-1990s and has gathered pace ever since.


The risks are becoming much more visible and we want more certainty
BP spokesman

The plan by Barclays to stop 18,000 staff contributing any more money to its final salary scheme is the latest example of a more recent trend that disadvantages existing staff, not just new recruits.

Similar moves have taken place in recent years at employers such as Rentokil, WH Smith and Fujitsu.

The trade union Unite said the Barclays plan would provoke "deep anger" among staff, and described the move as "utterly alarming".

Employers have been worried by the rising costs of paying for their promise to provide a pension linked to length of service and someone's final salary.

That has been partly because of volatile investment returns and partly because people have been living longer.

Although most final salary schemes in the private sector are now shut to new joiners, many of the big ones are still open to new recruits.

The most recent figures from the Office for National Statistics (ONS) showed that, in 2007, 47% of final salary scheme members in the private sector were in schemes still open to new joiners.

Surplus

The BP scheme is non-contributory, which means the cost of funding it rests entirely with the company.

BP expects that by providing new staff with a money-purchase, or defined contribution, scheme instead, it will be saving about $200m (£120m) a year within 10 years.

However, a spokesman stressed that the main reason was to stop the volatile costs of funding the scheme having a detrimental impact on the company's annual profit and loss accounts.

"The main reason is managing future costs and risks - which are much more difficult to predict," he said.

"The risks are becoming much more visible and we want more certainty".

Unusually, the BP pension scheme is still in surplus.

The most recent valuation as of the end of 2007 showed it to be 135% funded and although that position will have deteriorated when the 2008 valuation is published, the company expects the scheme will still have a surplus of about $1.7bn.

Of the BP scheme's 69,000 members, 39,000 are pensioners and 18,000 are deferred members, which means they have left the company but have not yet drawn their pensions.

The company has started a formal consultation process with its staff via its employee forums and trade unions.



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