Abbey axes final salary pensions

ABBEY National's new chairman Lord Burns has ended the final salary pension scheme for new recruits a fortnight after taking over at the bank.

Abbey, one of Britain's biggest employers with 27,000 full-time equivalent staff, is withdrawing its generous defined benefit scheme for new employees from 4 March. New recruits will be offered an inferior stakeholder scheme. The new rules will be backdated to 8 October last year for temporary staff.

Abbey is the latest high-profile employer to water down pension benefits. Sainsbury's, Marks & Spencer, BT and Lloyds TSB are among the crowd of companies no longer prepared to underwrite benefits for future staff. Ernst & Young and Iceland have gone further, dumping their final-salary schemes even for some existing employees.

Abbey, which announced the benefit changes to staff earlier this week, tried to put a favourable gloss on the move, arguing that the replacement stakeholder scheme would give employees added flexibility. It also said regulatory changes and the economic climate had contributed to its decision.

Abbey will make a contribution to the new stakeholder scheme, but declined to say how much, or how it compares with contributions made to its final salary scheme.

Lord Burns is a former Permanent Secretary at the Treasury, which has been urging companies and employees to provide for their old age as State provision dwindles.

Judy James of the finance employees' union UNIFI said Abbey's decision was disappointing. Among the big banks, until now only Lloyds TSB had stopped its final salary scheme for new employees. She said similar moves by other banks looked inevitable.

Lower prospective stock market returns and longer life expectancy have produced ballooning pension liabilities for companies. New accounting rules have added impetus to the rush from final salary schemes. In such schemes, the onus is on the employer to chip in whatever is needed to meet promised pensions. With stakeholder schemes, all the risk rests with the employee. Pension experts worry that the wholesale shift could leave millions of people facing an impoverished old age unless they make more provision themselves.

Abbey could soon part company with one of its main fund managers, Merrill Lynch Asset Management. An Abbey spokeswoman confirmed that the pension fund was under review and that some fund managers could be changed.