Standard Life to end final salary pension contributions
Insurance giant Standard Life today said it would be closing its final salary pension scheme to new contributions from April 2016.
The Edinburgh-based group closed the scheme – also known as defined benefit (DB) – to new members in 2004 but said it planned to end further contributions as part of an exercise to reduce the risks associated with this type of pension provision.
Chief operations officer Sandy Begbie said: “The decision to propose a change to the DB scheme has not been taken lightly, but we believe it is the right one.
“At the same time, we are proposing increased terms for the defined contribution (DC) scheme, which would be the scheme for all employees going forward.”
There are currently 2,975 active members of Standard Life’s DB scheme, or about 55 per cent of its UK workforce. They will now be given the opportunity to join its DC scheme, which has 2,500 members,
DB schemes promise a specific level of pension based on a member’s earnings and length of service, and employers are responsible for making sure there is enough money in the scheme to pay an income in retirement.
With DC schemes, the eventual level of income is uncertain as it will depend on factors such as fund performance.
Standard Life said employees in the DC scheme currently receive a core 9 per cent employer contribution with no matching for employee contributions.
From 16 April 2016, it is proposing all UK-based employees in the DC scheme will continue to receive a 9 per cent employer contribution, but the group will also match employees’ contributions up to 5 per cent of salary.
It will also enhance employee contributions by an extra 10 per cent, so a member of staff paying in 5 per cent a month from their salary would receive a company contribution of 14.5 per cent.
The group said the changes would help to “manage costs for the business and ensure it remains competitive and responsive to the needs of its customers”.
Although the DB scheme is currently in surplus, Standard Life said costs have risen “significantly” in recent years, and is expected to grow to about 40 per cent of members’ total salaries next year, up from almost 20 per cent in 2011.
Begbie added: “The cost of providing pensions on a DB basis is rising sharply so we’re taking action now before the cost grows even further.
“It’ll help us provide a competitive, sustainable company pension that’s consistent for all of our people, and also help our business keep performing well in the future.”
A consultation process with staff began today and will last for at least 60 days.