The announcement drew immediate fire from Amicus, the UK’s biggest private sector union, which labeled the move a “shameful act” from one of the country’s leading financial institutions, the Financial Times reported.
Roger Lyons, joint general secretary of Amicus expressed his concern about the “enormous insecurity” for employees, since financial market risk had been passed from employer to employee with the switch to a defined contribution scheme, the FT story reported.
However, Prudential said the move to a defined contribution plan is not being made because of financial woes dogging the existing pension program and contended that a DC plan would draw more employee retirement savings.
Pru: A Better Deal
In fact, Jonathan Bloomer, Prudential’s chief executive, argued that the proposed DC plan is actually a better arrangement for workers with its allowable contributions up to 18% of salary and new death-in-service benefits.
“A lot of people are not with us for the two years to qualify for the (traditional pension),” Bloomer told the Financial Times. “A lot have career breaks, a lot work for us for a time and go, a lot work part-time. We want a scheme (plan) that can let people take career breaks, come back and move around and it doesn’t matter if later on in life they move to a lower level of earnings.”
The new plan also offers better death and ill-health benefits than the final salary scheme, with benefits going to same-sex partners, the Financial Times quoted Prudential as arguing.
The Financial Times said Prudential’s announcement follows similar moves from other UK firms including British Airways, ICI, Marks and Spencer and J. Sainsbury. Others, such as Boots, the high street pharmaceutical chain, have transferred from equities to bonds.
The bear equity market – plus the new FRS 17 accounting standard that obliges companies to register the market value of a pension fund’s assets and liabilities – has plunged pension funds into deficit. However, Prudential said FRS 17 was not a factor in its decision and the group’s pension fund was still in surplus, the Financial Times said.