Thousands of Scots bank staff face substantial pension cut

Published on Thursday 3 December 2009 20:35

TENS of thousands of Lloyds Banking Group staff will suffer a "significant" cut in their final-salary pensions under plans unveiled yesterday.

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TENS of thousands of Lloyds Banking Group staff will suffer a "significant" cut in their final-salary pensions under plans unveiled yesterday.

The bank, which is 43 per cent owned by the taxpayer, intends to limit the level of pay increases that can be counted towards a final-salary pension to either 2 per cent or the rate of inflation. The lowest figure of the two will be counted.

In practice, this will mean that the salary which is used to calculate how much an employee will receive upon retirement is likely to be lower than their actual salary.

Unions yesterday slammed the changes as "naked opportunism".

Mark Brown, assistant general secretary at Lloyds TSB Group Union said: "Lloyds Banking Group has taken the cynical decision to use the current economic and banking crisis as an opportunity to cut pension costs.

"It is desperately opportunistic and will be resisted strongly by TU and its members."

About 56,000 Lloyds Banking Group employees around the UK will be affected by the proposal, including members of the former HBOS final-salary scheme. Lloyds said yesterday that it did not have a figure for the number of Scottish scheme members but they are thought to reach into the thousands.

Pensions expert Fraser Smart of Buck Consultants said the losses would be particularly devastating for employees who have been contributing to a final-salary scheme for 20 years but who still had over a decade before retirement.

He said: "There's potentially a really significant reduction in benefits."

Smart said the move was "sneaky", but was becoming increasingly common among large firms. He said: "Certainly over the course of 2009 it has gone from being virtually unheard of to being relatively common."

Legal and General set the precedent earlier this year and has since been followed by a string of other listed firms, including Royal Bank of Scotland and Marks & Spencer.

Although the changes are legal, Smart said staff at other firms had succeeded in increasing the level of pay increases that were counted to the Bank of England's target inflation rate of 2.5 per cent.

A spokesman for Lloyds Banking Group said the changes were part of an effort to offer the same terms and conditions to all final-salary scheme members following Lloyds' takeover of HBOS . The enlarged bank currently has 12 different pension schemes.

The Lloyds spokesman said: "We are committed to the scheme, but we think it is right that it is run on a sustainable basis. These are proposals and they are subject to consultation."

Before the merger with HBOS, Lloyds TSB's final-salary schemes had a combined deficit of 3.7 billion. The HBOS final-salary scheme is currently being valued.

Many companies have been trying to phase out and reduce the cost of their final-salary schemes over the past decade amid spiralling deficits. Most new private sector employees are on defined contribution schemes.

A report by Aon Consulting yesterday warned that the UK's 200 biggest final-salary schemes had a shortfall of 88bn at the end of last month, up 10bn from October. Aon said additional contributions of 15bn a year would be needed to shrink the deficit to zero over the next seven years.