CSFB Tying UK Pensions to Performance

December 5, 2003 (PLANSPONSOR.com) - Credit Suisse First Boston (CSFB) is tying pensions for its United Kingdom staff to the company's profitability.

While a novel idea in the UK, companies across the pond in the United States have adopted similar proposals.   Under CSFB’s layout, the investment bank would give better pensions to employees if the bank achieves a return on equity of 11%, according to a Financial Times report.

Further, for every 1% in return on equity the bank division achieves above 11%, CSFB would chip in an additional 0.5% contribution, up to a maximum 19.5% for older employees.   Examining 2003’s numbers, CSFB has thus far achieved a return on equity of 15.5%.  

I f the high watermark is not met, CSFB would contribute a minimum of 7.5% of salary for employees aged up to 39, 10% for those aged between 40 and 49 and 12.5% for those over 50.

CSFB’s move comes as the investment bank begins to consult its staff on scrapping its existing defined benefits plans in the UK, which include 14 final salary and defined contribution plans . The bank is proposing to close all existing defined benefit plans and starting next year, staff at the UK investment bank will be put into a new defined contribution plan called DC Plus. CSFB is set to make an undisclosed cash injection into some of the 14 plans to eliminate any deficits before a changeover.

Pensionexperts cited by Financial Times say the new arrangement offers a means for employers seeking to avoid the open-ended commitment of final salary schemes to make generous contributions when it can.   “This is going one step further than usual,” Jonathan Camfield, partner at Lane Clark & Peacock, actuarial consultants, told the Financial Times. “The company is saying, ‘If we make more money, then we have more money to put in the pension scheme’.”