Food and household goods giant Unilever, whose brands include Magnum ice creams and PG Tips, said the changes were necessary to ensure the “long-term financial sustainability and … competitiveness of the business in the UK”.
Under the proposed new arrangements, which would take effect from January 1 2012, Unilever said that current final salary scheme members - who number around three quarters of its 7,000 strong UK workforce - would receive a ‘defined benefit’ career average plan, plus a defined contribution investing plan.
Unaffordable and unsustainable
Amanda Sourry, Unilever UK & Ireland chairman, said the final salary pension scheme (which has a multi-million pound deficit and was closed to new members in 2008) was increasingly unaffordable and unsustainable. "Unilever is committed to being a sustainable company in everything we do and our pension arrangements are no exception,” she said.
“Our proposals have been designed to be balanced and flexible, with the aim of ensuring that all of our people can continue to expect a valuable and competitive pension benefit into the future.
“Going forward, one of the principles we want to establish is that both the responsibility and risks involved in saving for retirement are more equally shared between Unilever and its UK employees.
She added that Unilever, “like many other companies which have already taken similar action”, needed to address the difficult issue now to remain competitive.
Out of the blue
But Roger Turner, chief executive of lobby group the Occupational Pensioners’ Alliance (OPA), told FoodManufacture.co.uk: “I know a Unilever scheme member, and this came totally out of the blue for him, although it is a sign of how things are going.” He added that the UK had seen a "very rapid" decline in the number of final salary schemes over the past 20 years.
He said: “Firms are ditching these schemes because they aren’t affordable. It cuts costs for firms but transfers risk to the pensioner, which isn’t great for pensioner poverty."
With final salary pension schemes, the employer underwrites the vast majority of costs, so poor investment returns from a fund or increasing costs mean it has to increase its own contributions or (as per Unilever) make potentially unpopular adjustments to the scheme.
Conversely, defined contribution schemes require members to assume these risks by increasing their contributions when faced by higher costs or poor returns. If they fail to do so then retirement benefits will be lower than anticipated. "The company pays its [set] contribution in and that's the end of it," said Turner.
He said the announcement was especially bad news for Unilever pension scheme members in their 40s, with a “relatively short time to go” in their working lives, who had expected to receive a pension at a certain level.