Kraft Tells Cadbury Staff: Pension or Pay Raises

pril 6, 2010 ( – The new owners of Cadbury have told 3,600 employees they must take a three-year pay freeze unless they opt out of Cadbury’s final salary pension scheme.

The Financial Times reports that Kraft Foods discovered an obscure clause in Cadbury’s pension trust deed after it acquired Cadbury for £11.6 billion ($17.6 billion). The trust deed clause, which is at least 30 years old, prevents Kraft from changing benefits to members in any way that is “unfair or materially detrimental” in the opinion of the scheme actuary, according to the news report.  

In addition, Kraft has decided workers wishing to remain in the defined benefit scheme, which has 30,000 members, will see their contributions rise from 5% to 9% over the next four years. Cadbury closed its final salary scheme to new members in 2001 and replaced it with an average salary scheme, but the majority of Cadbury’s long-serving staff remain in the final salary scheme.  

Kraft believes the pay freeze is the only way it will be able to get its future retirement costs under control, the Financial Times says. To close the scheme it would have to pay an insurance company the full cost of taking on the scheme, which would run into hundreds of millions of pounds. According to the news report, the scheme’s 2008 annual report indicated its deficit was £258 million.