Employment Law - Pension scheme removal

[annie0000]

My employer has announced that they intend to remove the current non contributory final salary scheme that I am a member of and replace it with a career average scheme with other reductions to benefits and also make it contributory. This effectively means not only a loss in future pension income, but also a reduction in actual income if I want to retain a pension. Whilst I know that in the real world now, a final salary scheme is a luxury and cannot be sustained in the long term, this is effectively a salary cut of around 5% (6% contribution) as well as a cut in the benefits themselves. A non contributory scheme may be looked on as a massive perk, but that has been part of the package and has been a tool to keep salaries low. My question is basically, legally can they reduce our pay package without some sort of "buy out" of benefits? The company is doing well by the way and we also got only a tiny pay rise and bonus last year (below inflation).

[factor-fiction]

I'm afraid it's perfectly legal. In fact you are lucky that it's taken so long for your employer to get round to this.

[buildersmate]

What I suspect they are doing is stopping the 'Defined Benefits' scheme (aka a pension based on your future salary at the point you retire) and changing it to a 'Defined Contributions' scheme (aka the input contributions are declared by the company but the pension you get out depends on the investment performance of the Scheme).
However what they should also be doing is getting a 'fix' on the value of the Defined Benefits that you have accrued up till now under the old scheme - because this was part of your benefits packages in all the years to date. It is important that this is done and the benefits verified by an accuary and 'locked' for you - probably based upon your current salary at the point the old scheme stops and your numbers of years contributed. This will then be invested for you into the pension funder - and it will generate a future benefit for you on retirement - but not based upon the salary you are earning at that point. I trust you get my drift.

It is virtually inevitable that you will have to fund your pension contributions at a higher level in future than what you have contributed in the past - and that means a take-home pay cut, in effect. Yes, the company can do it - subject to giving you at least your contractual notice period of the change.

[annie0000]

Thanks Guys. Not quite buildersmate, they are replacing our 60th's defined benefit final salary scheme, with an 80ths career average defined benefit scheme with an increased retirement age and reduced death in service benefit. My gripe is not that we have to contribute more to our pensions, I am a realist, but that we will be paying more for less. They will make our existing benefits "paid up" in effect and we will be starting again. We are in a consultation period now.

[Hymie]

Just to depress you even more, your current retirement age on which your company pension will pay out is almost certainly 65. But once the government decides that your state retirement age will be increased to 66 or more – private pensions will jump on the band-wagon, not paying out till state retirement age.

This change will cost you £5k in a basic state pension (at today’s worth), plus a years’ worth of your company pension pay out – with no recompense. This change will cost me at least £15k based on my pension payments to date – others stand to loose substantially more.

[annie0000]

Hi Hymie - I have already resigned myself to the fact that I will probably never get a state pension, I am 43 and already have accrued 25 years of pension benefits in 3 other former employers schemes, so i guess I am not doing too badly. We seem to be the unlucky generation. No great endowment pay outs, no pensions, we support our parents, but will not be supported by our kids, we need to pay university fees, the planet is dying on us etc etc etc. It just seems mad that at a time where the government wants us to save for our future pension, we are being hammered to do so. Had I known this was going to happen, I would have negotiated a higher salary at the time. I guess I should be grateful i have a job, but I will be tempted to move on now anyway, the final salary scheme was pretty much all that was holding me.

[buildersmate]

I suggest you look very carefully at what you have now (in terms of accued pensions benefits) in your future career-planning. Whilst the sum of money in the total company pot that accrues benefit for retirees will clearly be put towards future benefits for all, the implication is that there will be some individual losers and some winners. It sounds as if you are pretty clued-up with this, so you might feel able to develop yourself a simple little model in Excel to model what might happen to you. I am surprised if the employer can essentially 'buy-out' your accrued rights and put them into an 'averaging pot' of future benefits - but I guess if it is negotiated through within an organisation that includes collective bargaining rights then it is do-able by the employer.
Though I often express my anti-Union views on here, this is one area in which the issue is so large that a Union-led negotiation is probably the best solution.